Liontrust UK Micro Cap Fund

July 2018 review

The Liontrust UK Micro Cap Fund returned 0.9%* in July. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -1.0%, the FTSE AIM All-Share Index returned 1.0% and the average return of funds in the IA UK Smaller Companies sector was 0.1%.


Equity markets were still captivated by trade war news. Trump acted on his promise to place tariffs on China which, as expected, announced retaliatory measures. However, relations with Europe were less strained; Trump met with Jean Claude Juncker, president of the European Commission, and agreed to not impose any further trade barriers.


In the UK, weak economic data – notably inflation numbers – sent trade-weighted sterling to its lowest levels of 2018 so far. UK CPI (consumer price index) grew 2.4% year-on-year in June, the same rate that was recorded in May but below analyst expectations for 2.6% growth. A consequence of the weaker pound was that UK large cap stocks outperformed: the FTSE 100 Index returned 1.5% in July, compared to the FTSE 250’s return of 0.4% and the FTSE Small-Cap (ex-IT) Index’s -1.0%.


It was a busy month of corporate releases by Fund holdings, with some mixed results. dotDigital Group (+26.0%) was one of the positives after a trading update showed group revenue for its 2018 financial year grew around 35% year-on-year and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) are expected to be in line with market expectations. The marketing platform provider also stated that strong momentum has continued into the new financial year and that it has seen no material impact from the implementation of GDPR, which had been a concern for investors in the run up to the update’s release.


The biggest faller this month was IDE Group (-60.9%). The group issued a trading update signalling a 90% drop in adjusted EBITDA in the first half of the year, as one-off projects from last year did not reoccur at the same rate. Later in the month, the group announced a deeply discounted fundraising of £5.5m through an issue of equity, convertible loan notes and an open offer. The proceeds will be used to address the company’s short term cash pressures and working capital issues. 


Frenkel Topping Group (-28.0%) was another stock to suffer. The financial advisor and asset manager stated that 2018 operating profit was set to be below market expectations due to increased marketing expenditure and client attrition, causing shares to decline. Management is confident that increased marketing will translate to higher assets under management.


AdEPT Telecom (+17.7%) and Solid State (-12.7%) both issued full-year results. IT and telecoms provider AdEPT saw revenue increase by 35% and EBITDA by 25% as a result of acquisitions and contract wins. Pleasingly for the Economic Advantage process, recurring revenue was 78.4% of total revenue. Recurring revenue of above 70% of annual turnover is one of the intangible assets the process looks for. Solid State, which manufactures computing, power and communications products, stated that its lower margin Value Added Distribution division has become more prominent in its sales mix and has resulted in a 2.6 percentage point reduction in gross margin.


Away from trading updates and results, IMImobile (+25.0%) rose following an acquisition. The cloud communications software provider agreed to buy Canada-based Impact Mobile for an initial payment of £14.4m. The acquisition is expected to be immediately accretive to earnings and will improve the group’s presence in the US market.

There were two changes to Fund holdings in July. The Fund participated in the initial public offering of investment platform provider Nucleus Financial Group, a stock which meets the process’s requirement on recurring revenue and strong distribution channels. The Fund also sold Empresaria Group, following a deterioration in the company’s cash flow return on capital profile, weak organic trading and high levels of debt in a cyclical business. These reasons eroded the managers’ conviction in the stock’s ability to be a long-term compounder of earnings for the process.


Positive contributors included:

dotDigital Group (+26.0%), IMImobile (+25.0%), AdEPT Telecom (+17.7%), James Cropper (+16.2%) and Bioventix (+12.1%).


Negative contributors included:

IDE Group (-60.9%), Frenkel Topping Group (-28.0%), Proactis Holdings (-21.6%), Sanderson Group (-13.2%) and Solid State (-12.7%).

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 31.07.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.06.2018, 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.



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, August 20, 2018, 9:26 AM