Liontrust UK Micro Cap Fund

September 2018 review

The Liontrust UK Micro Cap Fund returned -0.2%* in September. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -0.2%, the FTSE AIM All-Share Index returned -0.4% and the average return of funds in the IA UK Smaller Companies sector was -0.8%.


Last month’s largest portfolio riser became September’s biggest drag on performance, as Bioquell shares lost 20%. In the managers’ view, this needs to be viewed in the context of August’s 37% gain, which was catalysed by interim results and a full year guidance increase, and the 100%+ share price appreciation in 2018. With no newsflow this month, profit-taking seems to blame for the weakness.


Another of last month’s main movers, Pennant International (+11.1%), was again prominent. Having announced details of its largest ever contract in August, it followed up with interim results in September. Profit before tax more than doubled to £2.0m as revenues increased by 38% to £13.2m. The company, which provides the defence industry with highly realistic simulators of capital equipment such as tanks, expects trading for 2018 to be in line with current market expectations. It has a contracted order book of £31m schedule to be delivered during the next three years, while its broader pipeline of opportunities amounts to over £100m in potential value.


Pennant was just one of a selection of portfolio holdings to release interim results. Of these, the most positive investor reaction was for scientific instruments specialist Judges Scientific (+12.6%). Its shares rose after upgrading guidance; it now expects adjusted profit before tax and earnings per share to both exceed prior expectations. The company noted that order intake at the start (the first 10 weeks) of the second half of its year has been significantly ahead of last year’s comparable, giving it the confidence to lift its forecasts. In the first half of 2018, the company achieved 13% revenue growth – 5.7% organic with the remainder by acquisition.


By contrast, interims from James Cropper (-16.3%) revealed the extent to which high pulp prices represent a headwind. Pulp is an input for the company, which makes paper products as well as technical fibres. While the Technical Fibre division is experiencing demand levels which have caused it to invest in a 50% capacity expansion, effective from 2021, the Paper unit is now expected to take a £2m hit at the pre-tax level. This is not insignificant in the context of £4.5m group profit before tax for the year to 31 March 2018. The scale of the setback is, however, tempered by the knowledge that it results from an exogenous fluctuation in a cyclical input rather than any fault in James Cropper’s growth strategy.


Interim results from Nucleus Financial Group (-17.5%) also prompted a marking-down of the shares. The wrap platform provider saw assets under administration rise 16% to £14.4bn, but this growth reflected asset price rises as much as it did inflows. Net inflows amounted to £726m, 15% lower than in the first half of 2017. Its ‘revenue yield’ from the asset base also dropped from 33.3bps to 31.5bps, meaning that revenues grew by 11% to £21.6m, less than the growth in assets. Share price weakness appears attributable to outlook comments warning that inflows might remain soft in the short-term as advisers readjust to MiFID II and GDPR regulations.


Focusrite (-12.7%) weakened on the back of a trading update, but in the managers’ view its share price fall had more to do with the absence of further short-term upside catalysts than any negative developments. The audio software and hardware company expects revenue for the financial year ending 31 August 2018 to grow by 15% year-on-year to around £75m, in-line with market expectations.


An AGM trading update from AdEPT Technology (+13.3%) confirmed that progress in the six months to 30 September had been solid, supporting the declaration of a 4.9p interim dividend – up 15% over the comparable period. Since full year results were published in July, the company has completed its latest acquisition: Shift F7, which will make a two-month contribution to interim results due for release in November. Following acquisitive growth, more than 75% of the company’s revenues is now generated from managed services and IT, so the AGM also served to confirm a name change for the group, which had previously traded as AdEPT Telecom.


The Fund exited its position in Quixant which, at a market capitalisation of almost £300m, has outgrown the size range the managers consider for this Fund. The stock continues to be held in the UK Smaller Companies Fund.


Positive contributors included:

Proactis Holdings (+18.5%), Adept Technology (+13.3%), Judges Scientific (+12.6%), Pennant International (+11.1%) and Simplybiz Group (+9.4%).


Negative contributors included:

Bioquell (-20.0%), Nucleus Financial Group (-17.5%), James Cropper (-16.3%), Quartix Holdings (-13.9%) and Focusrite (-12.7%).


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 30.09.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**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.

Monday, October 15, 2018, 3:27 PM