Liontrust UK Micro Cap Fund

November 2018 review

The Liontrust UK Micro Cap Fund returned 0.5%* in November. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -1.9%, the FTSE AIM All-Share Index returned -4.5% and the average return of funds in the IA UK Smaller Companies sector was -1.4%.


The initial bounce back in stock markets following ‘Red October’ lost momentum half way through November as further uncertainty over Brexit and tumbling oil prices weighed on investor sentiment. This was evident across the whole market cap spectrum in the UK, with the FTSE 100 returning -1.6%, the FTSE 250 -2.1% and FTSE Small Cap (ex IT) -1.9%.


However, top-down investor sentiment didn’t quite dominate to the same extent as in October, with company newsflow playing more of a role. Bioquell (+33.7%) was one example of this as its share price shot higher on the agreement to be taken over by US-based Ecolab. The deal was struck at 590p per share, a 40% premium to the company’s share price at the time. Bioquell, a provider of bio-decontamination solutions to the pharmaceutical, life sciences and healthcare industries, had previously struggled to translate its intellectual property into sustained financial outperformance, until a new management team entered the fray a few years ago and substantially tightened up the business’ commercial and operational focus. Momentum has since returned to both the underlying business performance and the share price, which had already risen over 60% in 2018 prior to the takeover being announced, thanks to a series of analyst earnings upgrades.


Following completion of the deal, it will give a chance for the Economic Advantage team to promote one of their pipeline stocks at the other end of the investment lifecycle. This month, there were three new additions for the Fund: Gresham House, Quixant and Renalytix AI.


Gresham House is a specialist alternative asset management business. The company possesses Economic Advantage in the form of recurring revenues, with fees on assets under management tied into its long-term investment structures.


Quixant was a previously held stock but was sold in September after it outgrew the size range the managers consider for this Fund. The share price has since fallen meaning the market value of the company is now once again in the Fund’s market cap range. The team believes that the investment case for Quixant is still intact and reinitiated the position in the Fund at a level c.25% below where the Fund last sold the shares.


RenalytixAI was spun out of one of the Fund’s existing holdings EKF Diagnostics and started trading on AIM at the beginning of November. Existing shareholders in EKF received shares in the new entity via an ‘in-specie’ distribution of EKF’s interest in the company. RenalytixAI is a developer of artificial intelligence (AI) enabled clinical diagnostic solutions for kidney disease.


Customer engagement software provider Netcall’s (-36.5%) share price slid by a third over November. Although no newsflow was released during the month, the group’s full-year results published in October were accompanied by a decision to increase investment in sales and marketing and product development. The strategy is intended to fully exploit the growth opportunity for the group’s low-code software development platform, MatsSoft, acquired in 2017, but has the impact of hitting profitability during the period of increased investment, making the shares look expensive on a short term view.


AB Dynamics’ (+31.7%) full-year results were better received as it revealed a record year for revenue and profit. The automotive test systems company’s revenue increased by 51% year-on-year, adjusted profit before tax rose 45% and basic earnings-per-share was up 74%. Growth is expected to continue as demand for the company’s advanced test and measurement equipment remained high particularly due to the drive towards autonomous vehicles, helping it maintain a healthy order book.


Audio products maker Focusrite (+22.9%) also released upbeat results with significant improvements in revenue and profit. The company experienced growth in all geographic regions and both of its main divisions – Focusrite and Novation. It added that trading in the early months of the current financial year have been broadly similar to the same period last year and the company is on track to deliver further growth. Frenkel Topping Group (+32.4%) released a short trading update stating that it is trading in line with management expectations. The company’s Expert Witness business generated revenue exceeding the 2018 target, a positive indicator for assets under management in 2019.


Paper and technical fibre maker James Cropper (-17.8%) has been contending with higher pulp prices, resulting in additional costs of £3.5m which saw interim pre-tax profit fall 39% versus the prior year. Nevertheless the group maintained its interim dividend and expectations for its full-year results. Oleeo’s (-16.2%) preliminary full-year statement was similarly poorly received. The company, which operates a recruiting software system, reported a 40% drop in profit before tax as a result of higher costs including salary and marketing. Revenue, however, edged higher due to robust subscription revenue. 


Positive contributors included:

Bioquell (+33.7%), Sopheon (+33.0%), Frenkel Topping Group (+32.4%), AB Dynamics (+31.7%) and Focusrite (+22.9%).


Negative contributors included:

Netcall (-36.5%), James Croper (-17.8%), Oleeo (-16.2%), Sumo Group (-16.0%) and Vianet Group (-14.7%)


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 30.11.2018, 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 30.09.2018, 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.

Wednesday, December 12, 2018, 5:17 PM