Liontrust UK Micro Cap Fund

June 2021 review

The Liontrust UK Micro Cap Fund returned 4.3%* in June. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 0.9% and -0.5% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.5%.

 

The UK equity market added modestly to this year’s strong gains as investors waited to see whether the inflationary forces emerging from the economic recovery are likely to prompt any action from central banks. Uncertainty on the public health front also remains, with much debate over the interaction of the spread of new Covid-19 strains such as the delta variant with the planned removal of social restrictions.

 

In portfolio news, shares in Avingtrans (+28%) rose through June, helped by the announcement of an extended contract with Sellafield’s nuclear decommissioning body. Avingtrans designs, manufactures and supplies critical components and services to the energy, medical and industrial sectors. Sellafield exercised the option to move into the second phase of its contract with Avingtrans’ Stainless Metalcraft unit, adding an extra £20m to the contract won in 2015 (and now worth £70m in total). It will produce around 1,000 boxes used to store waste retrieved from legacy locations in Cumbria, contributing to the effort to reduce the nuclear hazard at Sellafield.

 

Semiconductor designer and manufacturer CML Microsystems (+25%) released full-year results showing falls in sales and profits due to the pandemic, but also including upbeat outlook comments. During the year it announced the sale of its Hyperstone storage division, leaving it focused solely on the communications market. The US$49m deal bolstered its balance sheet during a tough year in which semiconductor demand from voice-centric radio manufacturers dropped substantially. Overall, revenues fell 17% to £12.5m in the year to 31 March, while at the pre-tax level it broke even versus a £1.2m profit last year. It expects activity levels to improve, aided by a record order book and a recovery from its customers, many of whom CML believes are currently holding reduced inventory levels.

 

Although full-year results to 31 March confirmed an 18% revenue drop for Mind Gym (+30%), they also showed rapidly improving momentum as the year progressed, as shown by its revenue growth each quarter: -40% year-on-year in Q1; -38% in Q2; -2% in Q3; and +15% in Q4. The corporate training business doubled its digitally enabled revenues, which now account for almost 80% of the total. Mind Gym has experienced a strong start to the new year and expects revenues in the 12 months to 31 March 2022 to at least recover their pre-Covid levels. It will continue investing in its digital products, meaning that it expects only to break even this year, with a return to profitability expected the following year.

 

For some of the portfolio’s detractors, the direction of their share price in June didn’t reflect the tone of stockmarket updates during the month. K3 Capital Group (-6.8%) is a good example; the company sales specialist commented that earnings in the year to 31 May would be ahead of both its most recent guidance and consensus market expectations. However, with the shares having already risen 50% in 2021, they succumbed to some profit-taking. Yourgene Health (-11%) slid despite notifying the market of some new contract wins, while Inspiration Healthcare Group (-8.5%) fell in the first half of the month without obvious cause, before rallying after hosting a capital markets day.

 

Positive contributors included:

Mind Gym (+30%), Avingtrans (+28%), Inspired Energy (+26%), CML Microsystems (+25%) and Cerillion (+17%).

 

Negative contributors included:

Yourgene Health (-11%), Inspiration Healthcare Group (-8.5%), K3 Capital Group (-6.8%), Fonix Mobile (-6.0%) and Cohort (-5.7%).

 

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

 

Jun-21

Jun-20

Jun-19

Jun-18

Jun-17

Liontrust UK Micro Cap I Acc

59.5%

4.6%

3.1%

21.4%

33.7%

FTSE Small Cap ex ITs

65.2%

-12.3%

-8.6%

6.4%

28.4%

FTSE AIM All Share

42.5%

-2.8%

-13.9%

13.5%

38.5%

IA UK Smaller Companies

53.1%

-6.5%

-6.2%

17.2%

36.3%

Quartile

2

1

1

1

3

 

*Source: Financial Express, as at 30.06.21, 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 30.06.21, 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. 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.

Tuesday, July 13, 2021, 2:15 PM