Liontrust UK Smaller Companies Fund

July 2020 review

The Liontrust UK Smaller Companies Fund returned 3.2%* in July. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -2.4% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.8%.


The UK Main Market equity indexes recorded their first monthly decline since March’s severe sell-off. Concerns about increasing Covid-19 case numbers in the US, Europe and China – and the potential for reinstated lockdowns - weighed on stockmarkets around the world. It also hit the US dollar, which fell to two-year lows against major trading partners. 


A number of the Fund’s holdings updated on the effects of the pandemic on trading. Kainos Group (+47%) was the best performer as it reported on robust trading. The outsourced provider of IT design and support services to the public sector stated that long-term customer relationships and ongoing demand from the NHS has meant its business has been resilient. The company expects revenue and adjusted profit to be “substantially ahead” of consensus forecasts for the year to 31 March 2021. It will now look to repay the UK government support it received as part of the Job Retention Scheme. Despite this positive update, Kainos remained cautious in its outlook, stating that it remains too early to judge the economic impact of Covid-19 on its customers.


Strong results were also reported by Gamma Communications (+23%). The provider of voice, data and mobile communications now expects results for the full year to be ahead of consensus forecasts. The company’s revenue base remained solid, with 93% classified as recurring revenue, and it only experienced minimal cancellations of existing contracts. The company also stated that the integration of its new acquisitions – Voz Telecom and HFO Holdings – are progressing well and it continues to appraise other acquisition targets.


Cohort (+18%) estimated a £3m hit to revenue from Covid-19, but the company managed to post an 8% revenue increase for the year to 30 April 2020. It also achieved a record adjusted operating profit, driven by strong performances in its Portuguese communications division EID and its UK data technology arm MASS. Cash generation was stronger than expected due to accelerated payments from the UK Ministry of Defence, its largest customer. This meant net debt at the end of the period was £4.7m compared to £6.4m in 2019. The company provides a wide range of services and products to the defence and security market. It said the impact on public defence spend during the pandemic is hard to predict, but it entered the new financial year with a strong order book, which underpins 62% of full-year consensus revenue expectations.


Nucleus Financial Group (-17%) fell during the first part of the month, ahead of an Asset Under Administration update which stated that net inflows increased by 49% year-on-year to £165m in the second quarter. The investment wrap company saw a 13% increase in assets under administration on March levels, partly driven by the market recovery, closing out June with total assets of £15.8bn – just shy of £16.1bn they started the year at. Customer numbers also rose 4.3% and in early July broke 100,000.


A less positive update came from James Cropper (-14%), which stated that lockdown measures resulted in a sharp downturn in orders for its Paper business during the year; overall group orders at the start of its March 2021 financial year were trending 30% below the same period last year. The paper products maker added that it anticipates further pressure on revenue in the second half of the year. However, the company’s Technical Fibre Products (TFP) and Colourform divisions both saw growth in sales, mitigating some of the negative impact of Paper. The TFP business, which accounts for around two thirds of profits, is not expected to be materially impacted by the pandemic, with fuel cell and wind helping to offset the decline in aerospace demand. Overall, the company expects to breakeven at the end of the year, given the swift cost cutting measures it has taken. 


Mobile commerce company Bango (-14%) saw record revenue growth of over 50% to £4.8m in the first half of the year, as end-user spend rose sharply to more than £740m. Management was optimistic about the second half of the year, with end-user spend expected to reach £2bn for the full year.


A new position was opened in Tristel, a stock already owned in the UK Micro Cap Fund. Tristel is a manufacturer and developer of infection control and hygiene products, with a proprietary chemistry based on chlorine dioxide disinfection. The company’s products are used to disinfect medical instruments which are made of plastic and therefore cannot be sterilised using heat treatment – such as flexible endoscopes and ultrasound probes used in multiple hospital departments. It is also building strength in the area of surface disinfection, which is likely to see a boost from increased hygiene awareness around the world during the Covid-19 pandemic and beyond. The Fund owns the shares on the basis of intellectual property and also distribution strength, as Tristel has built up a global sales portfolio over many years in an industry with very high barriers to entry and stringent regulatory requirements for product approval in different countries.


Positive contributors included:

Kainos Group (+47%), Cello Health (+44%), Gamma Communication (+23%), IntegraFin Holdings (+18%) and Cohort (+18%).


Negative contributors included:

Nucleus Financial Group (-17%), James Cropper (-14%), Bango (-14%), Hilton Food Group (-13%) and Arbuthnot Banking Group (-10%).


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 31.07.20, 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 30.06.20, total return (net of fees and income reinvested), bid-to-bid, primary class.


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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.

Thursday, August 13, 2020, 3:14 PM