Liontrust UK Micro Cap Fund

January 2020 review

The Liontrust UK Micro Cap Fund returned 3.4%* in January. For comparison, the FTSE Small Cap (excluding investment trusts) Index returned 0.1%, the FTSE AIM All-Share Index returned -0.7% and the average return of funds in the IA UK Smaller Companies sector was 0.5%.

 

Trading updates covering various periods to 31 December accounted for some of the Fund’s largest stock moves in January. However, the biggest gain came courtesy of Frenkel Topping (+27.8%), which jumped following confirmation of bid interest. The asset manager and financial adviser announced a preliminary approach from Harwood Capital, which should confirm its intention to make a formal offer or otherwise by 25 February.

 

Another of the Fund’s holdings, Nasstar, dropped out of the portfolio during the month due to a takeover completing. On 17 December Mayfair Equity Partners announced an offer at 12.75p a share which completed during January.

 

Having featured as a large detractor in December, Sopheon (+24.2%) recovered after issuing another trading update. It had previously warned that a number of contracts expected to complete in Q4 2019 were unlikely to be signed until 2020. Its latest update suggests that it managed to reduce this slippage by completing a good number of deals in December. In Q4 as a whole, 23 licences were signed, of which 11 were new customers. The company now expects to deliver revenues and profits which are in line with market expectations.

 

A busy month for trading statements also saw vehicle tracking system specialist Quartix Holdings (+18.7%) give an update on the period to 31 December 2019. Over the year it generated 29% growth in new installations to 43,827 and a 22% increase in its fleet subscription base to 150,640 units. The company’s shares moved higher on comments that it expects revenue, profit and free cash flow to be slightly ahead of market forecasts. 

 

An interim trading update from Dotdigital (+19.0%) detailed 15% growth in revenue to £23.1m in the six months to 31 December following a 14% increase in average revenue per user to £999/month. The software-as-a-service provider of omnichannel marketing automation expects profits for the period to be in line with market expectations.

 

Instem (+18.9%) grew revenues by 12% in 2019 whilst EBITDA (earnings before interest, tax, depreciation and amortisation) is on course to meet its expectations. The company provides IT services to the global life sciences market. An upbeat outlook from the IT group described the market as buoyant and identified organic growth, acquisitions and margin improvement as targets for the company as it looks to maintain momentum.

 

An update from Quixant (-23.6%) was more concerning. Quixant designs and manufactures technology platforms for the global slot machine and pay-to-play gaming industry. In September 2019 it issued a profit warning due to weaker-than-expected demand for its customers’ gaming machines. This soft demand has subsequently been more pronounced and lasted longer than it anticipated, meaning that revenue and profits for 2019 are now both likely to fall short of already-reduced expectations. Quixant is reviewing its cost base moving into 2020, to protect against further sales weakness.

 

The Fund added a position in Concurrent Technologies, a long-time holding in the UK Smaller Companies Fund that also sits within the UK Micro Cap Fund’s target market cap range. Concurrent Technologies manufacturers computer components that are embedded in products for industries such as aerospace & defence, healthcare and telecoms. The company possesses significant intellectual property, one of the core intangible assets the Fund’s investment process targets.

 

Positive contributors included:

Frenkel Topping (+27.8%), Sopheon (+24.2%), Bioventix (+19.0%), Dotdigital (+19.0%) and Instem (+18.9%).

 

Negative contributors included:

Quixant (-23.6%), Beeks Financial Cloud Group (-10.4%), K3 Capital Group (-9.7%), Crimson Tide (-8.3%) and Simplybiz Group (-7.6%).

 

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

 

 

Dec-19

Dec-18

Dec-17

Liontrust UK Micro Cap I Acc

29.1

3.0

22.1

FTSE Small Cap ex ITs

17.7

-13.8

15.6

FTSE AIM All Share

13.3

-17.1

26.0

IA UK Smaller Companies

25.3

-11.7

27.2

Quartile

2

1

4

 

*Source: Financial Express, as at 31.01.20, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.19, total return (net of fees and income reinvested), bid-to-bid, institutional class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

 

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. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Some of the Funds managed by the Economic Advantage team invest primarily 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. The performance of the GF UK Growth Fund may differ from the performance of the UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

Disclaimer

The information and opinions provided 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.  Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Monday, February 17, 2020, 2:15 PM