Liontrust UK Micro Cap Fund

July 2020 review

The Liontrust UK Micro Cap Fund returned 2.1%* in July. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned -2.4% and 0.2% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.8%.


The UK Main Market equity indexes recorded their first monthly declines since March’s severe sell-off. Concerns about increasing Covid-19 case numbers in the US, Europe and China – and the potential for reinstated lockdowns – weighed on stockmarkets around the world. It also hit the US dollar, which fell to two-year lows against major trading partners. 


A number of the Fund’s holdings provided an update on the effects of the pandemic on trading. Cohort (+18%) estimated a £3m hit to revenue from Covid-19, but the company managed to post an 8% revenue increase for the year to 30 April 2020. It also achieved a record adjusted operating profit, driven by strong performances in its Portuguese communications division EID and its UK data technology arm MASS. Cash generation was stronger than expected due to accelerated payments from the UK Ministry of Defence, its largest customer. This meant net debt at the end of the period was £4.7m compared to £6.4m in 2019. The company provides a wide range of services and products to the defence and security market. It said the impact on public defence spend during the pandemic is hard to predict, but it entered the new financial year with a strong order book, which underpins 62% of full-year consensus revenue expectations.


Belvoir Group (+21%) said that it was still on track to meet its pre-Covid 19 forecasts, as revenue and profit for the first half of the year were comfortably higher than the same period last year. The estate agent and financial services company saw subdued trading in the second quarter when lockdown was imposed, but since the restrictions on the sector were lifted in mid-May it has observed a surge of activity due to pent-up demand. The impact of stamp duty reductions also added to the company’s positive outlook.


A less positive update came from James Cropper (-14%), which stated that lockdown measures resulted in a sharp downturn in orders for its Paper business during the year; overall group orders at the start of its March 2021 financial year were trending 30% below the same period last year. The paper products maker added that it anticipates further pressure on revenue in the second half of the year. However, the company’s Technical Fibre Products (TFP) and Colourform divisions both saw growth in sales, mitigating some of the negative impact of Paper. The TFP business, which accounts for around two thirds of profits, is not expected to be materially impacted by the pandemic, with fuel cell and wind helping to offset the decline in aerospace demand. Overall, the company expects to breakeven at the end of the year, given the swift cost cutting measures it has taken. 


Nucleus Financial Group (-17%) fell during the first part of the month, ahead of an Asset Under Administration update which stated that net inflows increased by 49% year-on-year to £165m in the second quarter. The investment wrap company saw a 13% increase in assets under administration on March levels, partly driven by the market recovery, closing out June with total assets of £15.8bn – just shy of £16.1bn they started the year at. Customer numbers also rose 4.3% and in early July broke 100,000.


Energy procurement consultant Inspired Energy (-13%) raised £35m through the issue of new shares and an open offer in order to acquire the 60% of Ignite Energy that it didn’t already own. The Fund participated in Inspired’s fund raising. The purchase of Ignite will broaden the company’s Environmental Social and Governance offering, an area of increasing importance to its client base.


Totally’s (-12%) full-year results to the end of March 2020 showed a 36% increase in revenue, but its pre-tax loss widened to £3.4m – in part due to a £2.8m amortisation charge. Excluding this amortisation charge, adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) rose to £4.0m from £1.1m last year. The healthcare service provider said it is unable to give guidance for the next financial year given the uncertainty of the impact of the Covid-19 crisis on the NHS. However, it remained confident that it will be able to grow cash flow and committed to its progressive dividend policy.


After a very strong run year-to-date, dotdigital exited the portfolio in July after its share price exceeded the £250m limit above which the fund managers look to gradually sell the stock. The managers added Gear4music Holdings to the portfolio. G4M is the largest retailer of musical instruments and music equipment in the UK (c7.8% market share). The company is headquartered in York and has additional showrooms and distribution centres in Sweden and Germany. The majority of its sales are made online via a bespoke e-commerce platform, which is localised for 19 countries across Europe. The Fund owns the shares on the basis of its intellectual property and distribution network. We believe that the IP underpinning the platform and its well-developed distribution network gives it significant barriers to entry and pricing power.


Positive contributors included:

Cello Health (+44%), Beeks Financial Cloud (+22%), Sopheon (+22%), Belvoir Group (+21%) and Cohort (+18%).


Negative contributors included:

Nucleus Financial Group (-17%), James Cropper (-14%), Inspired Energy (-13%), Cerillion (-12%) and Totally (-12%).


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







Liontrust UK Micro Cap I Acc





FTSE Small Cap ex ITs





FTSE AIM All Share





IA UK Smaller Companies











*Source: Financial Express, as at 31.07.20, 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 30.06.20, 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.

Thursday, August 13, 2020, 3:06 PM