Liontrust UK Micro Cap Fund

March 2019 review

The Liontrust UK Micro Cap Fund returned 3.2%* in March. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned 0.7%, the FTSE AIM All-Share Index returned 0.9% and the average return of funds in the IA UK Smaller Companies sector was 1.4%.


As investor sentiment towards UK equities continued to be shaped by developments on the key big picture topics of the moment – Trade Wars and Brexit – it was again pleasing that share price activity within the Fund was largely driven by bottom-up considerations, i.e. corporate newsflow from portfolio holdings.


Shares in customer engagement software provider Netcall (+50.1%) rebounded strongly from a steep slide in the prior six months. Interim results issued during March highlighted a “clear inflexion point” in its business transition, with cloud service bookings exceeding product sales for the first time. Total annual contract value rose 10% year-on-year to £15.1m at 31 December 2018. Investors had been perturbed by a decision announced last October to ramp up investment costs in order to accelerate this transition. In light of these concerns, clear evidence that the strategy is already beginning to bear fruit was welcomed by the market. Netcall stated that first half trading was in-line with its expectations for the period and that the second half of its financial year has so far seen strong sales momentum coupled with order inflow which is significantly ahead of the same period last year.


Teleradiology specialist Medica (+31.3%) staged a similar recovery from a Q4 2018 share de-rating. Full-year 2018 results were the catalyst with sales of £29m up 16% over the year – in line with expectations – and outlook comments guiding towards further double-digit revenue gains in 2019 following a good start to the year. The company’s network of contracted radiologists saw a net increase of 56 to 362 and all of its major service lines experienced volume growth, with NightHawk scanning leading the way with a 19.4% increase. The rally in the share price comes despite an element of uncertainty introduced by CEO John Graham’s decision to step down during 2019.


2018 results from SimplyBiz (+20.8%) showed a 15% increase in revenue to £50.7m and a 62% rise in adjusted profit before tax to £8.6m once one-off costs relating to its initial public offering (IPO) were stripped out. The Fund participated in the March 2018 IPO of the company, which provides a range of services to financial advisers and intermediaries. Over 2018, SimplyBiz grew its network of member firms by 9% to 3,726. The company’s distribution network is one of two core Economic Advantage intangible assets we believe it possesses, alongside significant recurring income.


Shares in SimplyBiz have performed well this year after a January trading update stated that earnings would be higher than forecast, following strong revenue growth and margin expansion. Having stated in its trading update that it was on the look-out for further selective acquisitions within its “highly-fragmented” marketplace, SimplyBiz in March also agreed to pay £74m to acquire Defaqto -  a fintech platform serving over 8,500 advisers. The acquisition will be part financed by a £29m placing at 180p, a fund raising at a c.10% discount, in which the Fund participated.


Proactis (-37.4%), among the largest detractors for a third month in a row, was sold from the Fund during March. This concluded a managed exit from the position which began after a concerning investor update in February. Having initially been willing to continue backing the company following a management reorganisation announced in January this year, developments in February led the fund managers to conclude that the risks associated with the holding had grown too large. One of the more concerning aspects of February’s profit warning – which cited a lower level of retention and a deterioration in US and European businesses’ pipelines – was that it came just a month after its January statement had suggested trading was progressing in line with expectations.

The Fund added a new position in Diaceutics, a data analytics company helping the pharmaceutical industry bring a new wave of targeted therapies to market, with particular expertise in oncology.


The company raised £17m through the issue of new shares equivalent to around a third of its share capital which, together with existing shares introduced to the market for the first time, left it with a market capitalisation in excess of £50m. The stock enjoyed a strong debut, finishing March at 105p, up from the 76p placing price at which the Fund invested.

The primary market of IPOs and introductions of new shares to the stockmarket forms a very useful component of the Fund’s prospective investment pipeline. Diaceutics represents the ninth such addition to the Fund since launch. We feel Diaceutics possesses both intellectual property, in the way its algorithms automate and cross-match data sets to provide advanced analytics, and also a strong distribution network having managed to set up Master Service Agreements with 20 of the top 30 largest pharmaceutical companies in the world, supplemented by agreements with over 2500 testing labs.

Positive contributors included:

Netcall (+50.1%), Medica (+31.3%), IMImobile (+28.2%), Inspiration Healthcare (+25.7%) and SimplyBiz Group (+20.8%).


Negative contributors included:

Proactis Holdings (-37.4%), K3 Capital Group (-21.3%), Frenkel Topping Group (-14.1%), Animalcare Group (-12.7%) and Mind Gym (-10.5%).


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 31.03.2019, 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 31.03.2019, 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.

Tuesday, April 16, 2019, 11:05 AM