Liontrust UK Smaller Companies Fund

July 2019 review

The Liontrust UK Smaller Companies Fund returned 0.4%* in July. For comparison the FTSE Small Cap (excluding investment trusts) Index returned -1.8%.


Global equity indices received a boost from the US Federal Reserve’s decision to cut rates, albeit with a rationale that appeared closer to ‘one-and-done’ than the repeated easing that some investors were looking for. However, at the small cap end of the UK it was domestic developments that dominated: specifically the prospects for Brexit under a Boris Johnson-led government.


Boris Johnson’s victory in the Conservative leadership race was interpreted as significantly raising the chances of a ‘no deal’ Brexit. He promised to take Britain out of the EU by 31 October with “no ifs or buts”, rhetoric which contributed to a 2.4% fall in the pound (in trade-weighted terms). Meanwhile the International Monetary Fund highlighted a no-deal Brexit as a principal risk factor to the global economy along with further US-China tariffs.


Against this backdrop, companies showing any signs of negative exposure to the macroeconomic environment were swiftly marked down by investors. Recruitment group Robert Walters (-17.9%) is an example of this within the Fund’s holdings. Interim results showing a soft UK performance prompted share price weakness. Adjusted profit before tax rose 5% in the first half of 2019 to £21.7m and net fee income increased 9% to £205m. While Asia Pacific and Europe both generated 10% net fee growth, its UK operations grew by only 1% on the same measure. Robert Walters commented that political and economic uncertainty relating to Brexit increasingly impacted confidence for both clients and job candidates. Although the company maintained its full year outlook, the share price reaction suggests that investors are more circumspect concerning the effect of macroeconomic headwinds.


Better news came from mobile payments processor Bango (+40.7%), with interims indicating another period in which end user spend has more than doubled year-on-year, rising from £220m to £465m. The company has recorded recent contract wins with Google Play, Amazon and Microsoft. Having de-rated over the prior six months, shares in the company were lifted sharply by the upbeat tone of the statement.


Shares in Accesso Technology Group (+49.3%) were also notable among the Fund’s top performing positions. It bounced off depressed levels on news that several informal approaches had led it to seek offers by entering into a formal sale process as defined by the UK’s Takeover Code. 


Events at Accesso during 2019 have led investors to question the company’s strategy and ability to execute on its growth opportunity. The queuing and ticketing technology company had stated in February that it would be reviewing its investment spending priorities and executive chairman Tom Burnet, the face of the company for many years, also stepped down into a non-executive role recently. The prospect of a quick return of some lost capital saw the shares jump from 750p to over 1100p, but they still sit well below half the level of this time last year.


Having disappointed on sales in 2018, investors took encouragement from an interim trading update from Quixant (+32.6%). The company designs and manufactures highly engineered technology platforms for the global slot machine and pay to play gaming industry. Revenue and profit before tax in the first half of this year were in line with management expectations. Quixant also provided some reassurance on expectations for the remainder of the year, commenting that activity levels from some major customers are improving as the company heads into its second half and that it has continued to convert new business opportunities to orders.


Learning Technologies Group (+17.0%) gave notice of strong trading within an interim statement and guided that full year operating profit will be “materially ahead” of current market expectations. Revenues rose 85% to £63m in the first half of the year while adjusted operating profit is on track to more than double to over £20m, beating consensus forecasts. In May 2018, Learning Technologies completed the reverse acquisition of PeopleFluent. Software licence retention for PeopleFluent was higher than expected, supporting Learning Technologies’ plans to return this division to growth in 2020.


A brief first quarter update from James Cropper (+18.2%) outlined 4% year-on-year sales growth. This is being driven by price increases and a focus on higher value niche markets in its Paper division, alongside continuing momentum within the Technical Fibre Products division. The latter, which accounts for the majority of group profits, utilises James Cropper’s expertise in non-woven materials to create high-performance, technical ‘veils’ which are sold into industries such as defence, aviation and automotive.


An AGM statement from industrial fastening manufacturer Trifast (-15.3%) warned that macroeconomic uncertainties have led to delays on production schedules for a number of new wins. It also commented that certain specific geographies have seen subdued demand while the ongoing automotive industry slowdown is having an impact. While Trifast also asserted that its pipeline is solid and activity levels are encouraging, there was no doubting the cautious tone of the statement.


An interim trading update from Keywords Studios (-8.9%) stated that profit margins would be lower in the first half of the year than the second. It gave the somewhat bittersweet explanation that particularly strong demand for its services had meant higher than anticipated investment in growth, including bringing forward the expansion of its facilities. The company provides technical and creative support services to the video gaming industry. On a constant currency, like for like basis, Keywords Studios’ revenues rose 17% to €146m in the first half of 2019 while adjusted profit before tax rose 15% to around €18.4m.


Positive contributors included:

Accesso Technology Group (+49.3%), Bango (+40.7%), Quixant (+32.6%), James Cropper (+18.2%) and Learning Technologies Group (+17.0%).


Negative contributors included:

Robert Walters (-17.9%), Trifast (-15.3%), Kainos Group (-13.8%), Keywords Studios (-8.9%) and Team17 (-7.8%).


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








Liontrust UK Smaller Companies I Inc






FTSE Small Cap ex ITs






IA UK Smaller Companies













*Source: Financial Express, as at 31.07.2019, 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 30.06.2019, 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.


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, August 12, 2019, 5:43 PM