Liontrust UK Micro Cap Fund

December 2021 review

The Liontrust UK Micro Cap Fund returned 2.7%* in December. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 5.8% and 2.6% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 4.7%.


Equity markets bounced back from the sharp fall at the end of November, despite the Omicron variant driving what the World Health Organisation described as a “tsunami” of Covid-19 cases. With initial indications that the variant is milder but far more transmissible, investors seemed confident that the economic recovery process will not be derailed. The inflationary nature of this recovery remains in focus after the UK and US reported respective inflation rates of 5.1% and 6.8% for November. As expected, this is prompting policy action, with the Bank of England raising rates for the first time in three years (from 0.1% to 0.25%) and the US Federal Reserve targeting a tapering of QE by March 2022, with three rate rises expected later this year.


One of the portfolio’s highlights in November was Solid State (+19%), the supplier of electronic components and systems for use in harsh environments by industrial, commercial and military clients. Interim results showed that revenues in the six months to 30 September rose by 19% year-on-year, a growth rate which would have been even greater were it not for global supply chain difficulties. Order intake was strong across all sectors, including markets such as energy and aerospace that had previously shown weak demand during the pandemic. Solid State says that trading since the period end has been strong, leaving it on course to meet consensus analyst forecasts for full-year growth in revenue and profits.


Shares in K3 Capital Group (+13%) also responded well to a reassuring trading update. Revenues and EBITDA (earnings before interest, tax, depreciation and amortisation) in the six months to 30 November are around half the total targeted for the full year to 30 May 2022 at over £30m and around £9m respectively. The company sales specialist described trading in the period as “incredibly positive” and reiterated its focus on identifying bolt-on acquisitions that can supplement its organic growth.

Revenues at Mind Gym (-17%) recovered their pre-pandemic levels in the six months 30 September; a £24m top line is a 67% rebound from last year’s comparable period and a 1% improvement on the level two years ago. Mind Gym is a corporate training business. The effect of the pandemic on its operating model is clear through the increased proportion of revenues from digital products and virtual sessions – from under a third two years ago to over 80% in the most recent period.

While the interim results were largely positive, the company’s outlook statement sounded a note of caution on the potential impact of the Omicron variant on client decision making. The company also indicated some increasing costs as it continues to invest in the new digital product range, which caused a cut to forecasts and will likely push the company into a small loss for the upcoming year.

Promotional product specialist Pebble Group (-12%) stated that it expects 2021 financial results to be “at least in line with market expectations”. Although an apparent marginal upgrade to guidance, this is the same wording as used within its half-year results in September, so it’s likely that many investors had actually expected a firmer commitment to a higher outcome at this point.

Eckoh (-12%), the provider of secure payment products and customer contact solutions, was a top performing holding in November after announcing its largest ever contract. This month, it slid back after completing a large placing in order to finance an acquisition. It announced the £31m cash-and-shares purchase of Syntec Holdings, a UK peer in secure payments through its CardEasy brand. To help finance the deal, Eckoh completed a placing of almost 10% of its share capital at a price of 54p, a 12% discount to the prior share price, and shares in the company moved down towards the placing price in the secondary market.

Cohort (-11%) interims showed 10% growth in revenues to £60m in the six months to 31 October and an 18% rise in order intake, pushing the order book to a record level of £286m. Cohort owns a portfolio of six businesses supplying technology to the defence sector. While most of these divisions experienced good trends recently, its Chess surveillance, tracking and gunfire control unit has been weaker than expected due to order slippage and delivery issues. As a result, Cohort’s adjusted operating profit tumbled 60% to £1.7m.

Positive contributors included:

Quixant (+23%), Solid State (+19%), Adept Technology Group (+17%), Inspiration Healthcare Group (+14%), K3 Capital Group (+13%).


Negative contributors included:

Mind Gym (-17%), Eckoh (-12%), Pebble Group (-12%), Cohort (-11%) and Essensys Group (-8.5%).


Discrete years' performance** (%), to previous quarter-end:






Liontrust UK Micro Cap I Acc






FTSE Small Cap ex ITs






IA UK Smaller Companies












*Source: Financial Express, as at 31.12.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.12.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.


For a comprehensive list of common financial words and terms, see our glossary here


Key Risks:

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The portfolio is primarily invested in smaller companies and companies traded on the Alternative Investment Market. These stocks may be less liquid and the price swings greater than those in, for example, larger companies.


This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.


Thursday, January 13, 2022, 11:10 AM