Liontrust UK Micro Cap Fund

November 2019 review

The Liontrust UK Micro Cap Fund returned 4.7%* in November . For comparison, the FTSE Small Cap (excluding investment trusts) Index returned 3.5%, the FTSE AIM All-Share Index returned 3.9% and the average return of funds in the IA UK Smaller Companies sector was 4.8%.


US-China trade talks once again dominated investor attention. Although the narrative seemed to shift on a daily basis, the speculation was not backed up with any real evidence of substantive developments, so there was no obstacle to investors choosing to adopt a risk-on mood.


Within the FTSE All-Share’s 2.2% rise, the FTSE100 gain of 1.8% was once again outstripped by returns from mid and small caps. As the UK election campaign kicked off, sterling built on October’s gains, albeit in more modest terms: a 0.8% trade-weighted gain followed last month’s 3.4% rally.


Eckoh (+20.8%) described trading in the first half of its financial year (ending February 2020) as “exceptionally strong”. The company provides software solutions used in contact centres, including a patented solution that allows the secure receipt of customer payment information. Sales rose 37% in the six months, driven by a doubling of US sales as it booked US$2.1m of revenue from a US$3.8m contract win announced in July. Despite the bullish tone of its first-half commentary, Eckoh chose to leave its full year guidance unchanged.


Judges Scientific (+23.9%) announced that it would be paying out £2 a share via a special dividend, amounting £12m in total. Judges Scientific intends to continue with an acquisitive growth strategy, but the cash was designated as excess funds due to the strength of its balance sheet and cash generation, as well as its ability to borrow on improved terms.


Tatton Asset Management (+20.3%) is now managing assets of £7.0bn on a discretionary basis, up 23% over a year. Interim results for the six months to 30 September showed this asset increase dropping through to a 15% revenue increase to £9.7m and 23% rise in adjusted operating profit to £4.1m. While noting a backdrop of a slowing global economy and rising investor hesitance due to Brexit, Tatton reaffirmed its full year expectations.


An interim announcement from D4t4 Solutions (-17.1%) maintained sales and profit guidance for the full-year, but investors marked the shares lower on the significant second half weighting to trading. With two-thirds of the full-year forecast still to be achieved, execution risk is particularly back-loaded this year. This is the result of the high number of contracts which were signed during the second half of last year, which now fall for renewal in the second half of this year.


Shares in ULS Technology (-10.9%) have de-rated over the summer since June’s full year results, not helped by a September announcement of a contract loss. The company, which provides an online B2B conveyancing platform, issued an interim trading update in November that stated profit before tax was in line with its expectations at £2.8m. Although profits are at a similar level to last year, they were generated from revenues that were 9% lower, due to the company’s focus on higher margin opportunities. 


Shares in EKF Diagnostics (-8.3%) lost some ground despite a trading update confirming revenues and profits in 2019 are on course to meet market expectations, which the company notes have already been upgraded during the year.


The Fund initiated a position in Haynes Publishing. Traditionally known for its automotive instruction manuals, Haynes has built on the brand’s heritage to become a leading global supplier of content, data and innovative solutions for the automotive aftermarket and motorists. Leveraging its proprietary Intellectual Property via digital channels, the business is becoming increasingly embedded within its customer base. The increasing quality of the business is evident in a very low client churn rate and improving cash flow returns on invested capital, which have risen from 2.9% in 2013 to an impressive 17% in the most recent year.

A new holding was also added in Intercede, a former constituent of the UK Smaller Companies Fund whose market cap of around £25m is better aligned with a micro cap mandate. It is one of the leading providers of digital identities and authentication solutions to the US government. With strong Intellectual Property and an enviable customer base, it is beginning to expand globally, recently winning a contract to supply national IDs to a country in the Middle East.


Statpro and Synnovia both exited the portfolio in November as their takeovers completed, locking in 34% and 20% respective returns since initiation in the Fund.


Tracsis was sold from the Fund on account of its directors’ equity ownership falling below the 3% level the managers require of all holdings after the departure of long-standing CEO and large shareholder, John McArthur, earlier this year. Ideagen also left the portfolio on completion of a managed exit that was triggered by its market cap exceeding the Fund’s upper limit of £250m.



Positive contributors included:

Judges Scientific (+23.9%), Inspired Energy (+21.1%), Eckoh (+20.8%), Tatton Asset Management (+20.3%) and Essensys (+19.7%).


Negative contributors included:

D4t4 Solutions (-17.1%), ULS Technology (-10.9%), K3 Business Technology (-10.9%), Nucleus Financial Group (-8.3%) and EKF Diagnostics (-8.3%).


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





Liontrust UK Micro Cap I Acc




FTSE AIM All Share




FTSE Small Cap (ex IT)




IA UK Smaller Companies









*Source: Financial Express, as at 30.11.2019, 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 30.09.2019, 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.

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, December 10, 2019, 3:02 PM