Liontrust UK Smaller Companies Fund

April 2020 review

The Liontrust UK Smaller Companies Fund returned 15.4%* in April. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 9.5% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 14.1%.

 

Those companies with strong balance sheets were in favour as investors seemingly started looking through the short-term P&L impact of virus-related disruption. A number of Fund holdings were part of this group, issuing statements reassuring the market about their financial positions and providing updates on actions they are taking to mitigate the Covid-19 hit. As mentioned in the March review, the Fund entered the crisis in a strong position in this respect, with around two thirds of its holdings in a position of net cash. Despite the potential for more extreme working capital swings than usual, the managers hope this should stand the Fund’s companies in good stead, relative to the wider market.

 

One of last month’s biggest fallers Robert Walters (+43.3%) saw a substantial share price increase. In a first quarter statement, the group noted that Covid-19 has impacted trading – revenue fell 11% – and expects a more challenging second quarter. However, management was confident that the company is well placed to weather this crisis, outlining cost cutting measures which reduced its cost base by 15% and highlighting a strong balance sheet with ample liquidity.

 

AB Dynamics’ (+57.9%) first half results covering the six months to end February 2020 showed the group had grown revenues by 34%. As with many other companies, AB Dynamics withdrew guidance for the full year given the current uncertainty. It has seen deferment of some large orders but this has not had a material impact on order intake so far. Manufacturing facilities remain operational and it has taken action to conserve cash reserves.

 

Next Fifteen Communications (+25.3%) published delayed full year results for the 12 months to end January 2020, which showed that the marketing and public relations company entered the crisis in a healthy position. The company added that it has not yet seen a material impact from the coronavirus disruption but expects to see this feed through in May as customers reduce marketing expenditure.

 

Another holding to display strong momentum heading into the crisis was Tatton Asset Management (+34.7%), which reported net inflow of £1.12bn in the year to end March 2020, helping grow assets under management (AUM) to £6.65bn from £6.07bn. The market fallout from Covid-19, however, led to an investment performance of -14% but the company maintained that while it is too early to determine the full extent of the Covid-19 impact, it is well placed to execute its long-term growth strategy.

 

Attraqt Group (-12.5%) was one of the few stocks to end April lower. The company provides site search, visual merchandising and personalised product recommendation software to internet retailers such as ASOS, Superdry and JD. Whilst it has not yet seen a material impact from the coronavirus fallout, it acknowledged the difficulties faced by its customers in the retail space. Additionally, the company’s well-respected CEO Luke McKeever, responsible for the turnaround of the group in recent years, announced he will have to step aside for personal reasons.

 

The benefits of Quartix’s (+32.3%) recurring revenue were evident in its first quarter statement. The vehicle tracking software company stated that its revenue is underpinned by a subscription base of 150,000 vehicles, meaning there has been minimal initial impact from the crisis. This is likely to be the case for several months, despite a slight uptick in attrition rates. The group believes it would not need to draw on its current cash reserves but nonetheless outlined sensible measures to conserve this cash balance as a contingency.

 

The managers added Impax Asset Management, a specialist asset management company focusing on sustainable investment strategies, with over £14bn of AUM and an attractive tailwind of structural growth behind it from the shift to ESG investing. It was bought for the Fund on the strength of its recurring income, as it generates revenue from ongoing fees levied on the assets it manages for clients.

Positive contributors included:

AB Dynamics (+57.9%), FRP Advisory Group (+49.7%), Robert Walters (+43.3%), Clipper Logistics (+42.0%) and Tatton Asset Manager (+34.7%).

Negative contributors included:

Arbuthnot Banking (-15.3%), Attraqt Group (-12.5%), Smart Metering Systems (-8.7%), K3 Business Technology Group (-7.0%) and JTC (-4.8%).

 

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

 

 

Mar-20

Mar-19

Mar-18

Mar-17

Mar-16

Liontrust UK Smaller Companies I Inc

-5.8

1.9

17.1

26.3

18.1

FTSE Small Cap ex ITs

-24.4

-3.1

2.2

19.7

5.9

IA UK Smaller Companies

-17.9

-2.6

14.9

18.7

8.2

Quartile

1

1

2

1

1

 

*Source: Financial Express, as at 30.04.20, 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 31.03.20, total return (net of fees and income reinvested), bid-to-bid, primary class.

 

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.

Disclaimer

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, May 15, 2020, 3:09 PM