Liontrust UK Smaller Companies Fund

June 2021 review

The Liontrust UK Smaller Companies Fund returned 1.7%* in June. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 0.9% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.5%.

 

The UK equity market added modestly to this year’s strong gains as investors waited to see whether the inflationary forces emerging from the economic recovery are likely to prompt any action from central banks. The constant uncertainty on the public health front also remains, with much debate over the interaction of the spread of new Covid-19 strains such as the delta variant and the planned removal of social restrictions.

 

Within the portfolio, although full-year results to 31 March confirmed an 18% revenue drop for Mind Gym (+30%), they also showed rapidly improving momentum as the year progressed. This is illustrated by its revenue growth each quarter: -40% year-on-year in Q1; -38% in Q2; -2% in Q3; and +15% in Q4. The corporate training business doubled its digitally enabled revenues, which now account for almost 80% of the total. Mind Gym has experienced a strong start to the new year and expects revenues in the 12 months to 31 March 2022 to at least recover their pre-Covid levels. It will continue investing in its digital products, meaning that it expects only to break even this year, with a return to profitability expected the following year.

 

Shares in Next Fifteen Communications (+15%) rose sharply after a trading update revealed an acceleration in growth that pushed performance ahead of its expectations. Revenues rose 21% year-on-year in the three months to 30 April – including 17% organic growth – and growth accelerated further at the start of Q2.

 

The largest faller in the portfolio was On The Beach Group (-22%). Its revenues dropped dramatically in the six months to 31 March 2021 when compared with a year earlier – a period largely unaffected by Covid-19. As a holiday retailer, the drop-off seems largely unavoidable given the heavy travel restrictions in place across the period. Given what On The Beach describes as a cautious UK government approach to reopening leisure travel, it has accepted that summer 2021 volumes will be difficult to boost and is instead focusing on summer 2022. In light of the short-term uncertainty around leisure travel, On The Beach maintained its suspension of full-year guidance on revenues and profitability.

 

Currency headwinds weighed on RWS Holdings (-12%) as it issued interim results covering the six months to 31 March 2021. Although adjusted profit before tax for the six months was ahead of management’s expectations (+53% to £51m), adverse currency trends are affecting the second half of its year. The translation and language services specialist generates a significant proportion of revenues in US dollars, but the dollar has weakened relative to sterling in recent weeks.

 

Shares in Craneware (-9.9%) dipped as it announced a £140m placing to part finance the US$400m acquisition of Sentry, a leading provider of software-as-a-service solutions for pharmacy procurement. It has a customer base which includes over 600 US hospitals, only 25% of which are existing Craneware customers. The placing price of 2200p represented a 10% discount to the share’s prior level; the Fund was able to participate in the capital-raise. Craneware also updated the market on current trading, stating that it is confident in meeting market expectations for the year to 30 June.

 

Positive contributors included:

Mind Gym (+30%), Midwich Group (+18%), Next Fifteen Communications (+15%), Learning Technologies Group (+11%) and Gateley Holdings (+8.8%)

 

Negative contributors included:

On The Beach Group (-22%), RWS Holdings (-12%), Craneware (-9.9%), Judges Scientific (-8.3%) and Hilton Food Group (-6.9%).

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

 

Jun-21

Jun-20

Jun-19

Jun-18

Jun-17

Liontrust UK Smaller Companies I Inc

46.7%

1.9%

2.3%

18.7%

39.9%

FTSE Small Cap ex ITs

65.2%

-12.3%

-8.6%

6.4%

28.4%

IA UK Smaller Companies

53.1%

-6.5%

-6.2%

17.2%

36.3%

Quartile

3

1

1

2

2

 

*Source: Financial Express, as at 30.06.21, 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 30.06.21, 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.

Tuesday, July 13, 2021, 2:15 PM