Liontrust UK Micro Cap Fund May 2019 review

The Liontrust UK Micro Cap Fund returned 0.7%* in May. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -1.2%, the FTSE AIM All-Share Index returned -0.8% and the average return of funds in the IA UK Smaller Companies sector was -0.1%.


A deterioration in US-China trade relations and ongoing political turmoil in the UK provided an unhelpful backdrop for equity investors in May. The FTSE 100 lost 2.9% while the FTSE All-Share declined by 3.0%. The Small Cap end of the market showed some resilience, restricting losses to 1.2%, but it was nevertheless a month characterised by risk aversion.


Within this environment it was once again encouraging that movements in portfolio holdings were driven mostly by company specifics, allowing the Fund to offset some weak spots – such as Netcall, down 28% - with as many areas of strength.


Attraqt Group (+32.1%) represented one of the portfolio’s biggest highlights, rising significantly on news of another transformational acquisition. Following last year’s reverse acquisition of Fredhopper – a deal the Fund helped finance by participating in a £27.5m share placing – Attraqt announced a £13.8m deal to buy Early Birds. The target company is a provider of an artificial intelligence based software-as-a-service platform that allows retailers to personalise their eCommerce offerings and bolsters Attraqt’s existing intellectual property in a key area customers are increasingly demanding of their suppliers. The purchase was funded by a £17m placing at 27p, the same level at which the shares traded prior to the announcement. The Fredhopper placing trebled Attraqt’s market capitalisation, and this placing will raise it by more than a third.


A brief AGM update from Frenkel Topping Group (+17.8%), which specialises in financial advice for vulnerable people, stated that momentum has been good in 2019, with the business performing in line with its expectations. Specialist asset manager Gresham House (+16.4%) also used an AGM statement to outline trading which is in line with expectations. The company specialises in alternative asset classes such as renewable energy, private equity, housing & infrastructure, and forestry. The latter has been one of the highlights this year so far, with a large institutional investor signing letter of intent for Gresham House to manager an Irish forestry portfolio on its behalf.


Shares in Netcall (-27.5%) tumbled at the end of the month after warning that product sales have been hit by NHS purchasing delays. As a result, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the year to 30 June 2019 is now expected to be around £3.4m, compared with analyst forecasts of £4.5m. Netcall’s cloud-based services saw better trends, with year-on-year sales growing 160% to £6.5m


A trading update for the year to 31 March 2019 from ULS Technology (-16.3%) included a softening of guidance towards results which will be only “broadly” in line with market expectations and the prior year’s level. Revenues are expected to drop to £29.9m from £30.7m in 2018, while profit before tax will fall to £5.4m from £5.5m.


ULS Technology provides online B2B platforms for the UK conveyancing and financial intermediary markets. It commented that a highly unsettled economic backdrop, particularly concerning Brexit, had contributed to a further nationwide slow-down in the housing market. The company’s outlook comments were also cautious, referring to unsettled conditions at the start of its new financial year, with lower transaction volumes across the market.


A trading update from Cerillion (-9.9%) warned that results for the six months to 31 March would be behind the same period last year due to the timing of contract closures. These contracts are expected to complete in the second half of the year, and Cerillion still expects full year results to meet current analyst forecasts. Investors perceived higher risks associated with this second-half bias to activity, and marked shares in the billing and CRM (customer relationship management) specialist down accordingly.


During May, the Fund completed the disposal of holdings in Focusrite and AB Dynamics, both of which have been among the Fund’s more notable success stories since launch, returning more than 200% and 500% respectively. Earlier this year, both stocks’ market capitalisations rose above the Fund’s £250m upper limit, above which the managers look to implement a managed exit from the position.


The Fund participated in a £28m placing which accompanied the admission of essensys to AIM. Its products help operators of flexible workspaces manage their businesses both from an enterprise resource planning and operational perspective. Commercial real estate services company Jones Lang Lasalle predicts the flexible workplace market should grow from 0.5% to 30% of all commercial property usage by 2030, driven by demand from businesses of all sizes. Although that could well be optimistic, it’s clear demand is growing and essensys should be a “picks and shovels” way to play this trend. With high contracted recurring income, clever intellectual property and products embedded within its end customers’ workflow, it ticks all three Economic Advantage asset boxes.


Positive contributors included:

Attraqt Group (+32.1%), Surgical Innovations Group (+20.6%), SimplyBiz Group (+18.8%), Frenkel Topping Group (+17.8%) and Gresham House (+16.4%).


Negative contributors included:

Netcall (-27.5%), ULS Technology (-16.3%), Inspired Energy (-10.8%), Tatton Asset Management (-10.4%) and Cerillion (-9.9%).

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 31.05.2019, 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.
Tuesday, June 11, 2019, 12:37 PM