Liontrust UK Micro Cap Fund

May 2020 review

The Liontrust UK Micro Cap Fund returned 4.6%* in May. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmark returned 3.4% and 8.1% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 4.1%.


The market’s recovery from February and March’s Covid-triggered losses continued in May. Despite further dire data on the economic impact of the virus response and the prospect of revised tensions between the US and China, investors again chose to look towards the recovery anticipated as lockdown measures begin to ease and massive monetary and fiscal stimulus kicks in.


Economic impact estimates released during May included the Bank of England’s prediction of a 14% fall in UK output this year and the ECB forecast of an 8-12% eurozone contraction. Meanwhile, US unemployment jumped to 14.7% in April, its highest since the second world war.


At the lower end of the market cap spectrum in particular, the focus remained on the extent to which companies have been affected by lockdown measures and the implications for liquidity. This explains the substantial rally in shares of Accesso Technology (+57.1%), the provider of queuing and ticketing technology to the leisure industry. Faced with the prospect of heavily reduced trading through its typically busiest summer months, the company moved to boost short-term liquidity through a £32m placing and £6m open offer. The funds should ensure it avoids breaching debt covenants at June or September milestones. It also renegotiated its banking facilities to remove or modify a number of covenants and to secure an extra £6m headroom. A trading update illustrated the scale of the Covid-19 impact on its business: venue closures and event postponements had led to an 80% year-on-year drop in sales for April. It is now exploring new ticketing solutions such as virtual queuing with some of its clients that are planning to reopen. 


Shares in Totally (+54.6%) notched up a big gain in May as investors continued to digest a trading update issued on 20 April. The company provides ‘out-of-hospital’ healthcare services such as NHS 111 and operates Urgent Treatment Centres in London. It announced it was on course to report EBITDA (earnings before interest, tax, deprecation and amortisation) in excess of consensus market expectations on revenues that were lower than expected. The revenue shortfall results from delays in NHS contract awards which Totally attributes to Brexit and the general election.


Quartix Holdings (+32.3%) rallied strongly in May ahead of a 2 June update which detailed the rate of recovery for vehicles in the UK and France using its tracking systems. Vehicle mileage in both markets troughed in late March at more than half the normal rate. French mileage had recovered to 9% below baseline levels by 22 May, but UK mileage remained 40% lower than normal. While Quartix is reluctant to give further guidance, it believes the pandemic is unlikely to have a material impact on profit or cash flow in the first half of 2020.


Among the portfolio detractors in May, Surgical Innovations Group (-15.6%), a designer of instruments for minimally invasive surgery, updated on the sales hit due to the suspension of elective surgeries. Revenues in April were 70% lower than the prior year. In response, it has scaled back costs significantly – furloughing over 80% of employees and implementing short-term salary reductions. On 1 May, it had preserved a cash balance of £1.65m, which it believes should allow it to maintain operations at a lower level of demand for several months. In addition, it has agreed with its bankers to suspend capital repayments on its debt until October and it has accessed £1.5m via the Coronavirus Business Interruption Loan Scheme. The company is optimistic that elective surgeries may recommence in August and caseloads could return to pre-Covid levels in the final quarter of the year.


Cello Health (-9.6%) is among the businesses that have been less affected by lockdown measures, although its share price failed to take any impetus from a May AGM statement given much of its detail had been covered in an April trading statement. The pharmaceutical marketing specialist commented that overall bookings visibility and the new project win rate have been maintained while the performance of its US business has been notably robust.


Interim results from Oxford Metrics (-11.1%) showed a 6.5% fall in revenues in the six months to 31 March 2020 after global lockdown measures meant £1.1m of orders for its Vicon product – a high precision motion measurement analysis technology – could not be fulfilled. This had a negative £0.9m effect on interim profits but the company says that these orders have now largely been fulfilled. The company has suspended its financial guidance but stated that it is not currently experiencing any supply chain issues.


The position in ULS Technology was sold due to its senior management equity ownership falling below the 3% threshold the fund’s managers require of all investments.


Positive contributors included:

Accesso Technology Group (+57.1%), Totally (+54.6%), Quartix Holdings (+32.3%), Essensys Group (+21.4%) and Inspired Energy (+20.2%).


Negative contributors included:

Surgical Innovations Group (-15.6%), Oxford Metrics (-11.1%), Churchill China (-11.0%), Cello Health (-9.6%), MJ Hudson (-7.5%).


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 31.05.20, 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 31.03.19, 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.

Friday, June 12, 2020, 3:58 PM