Liontrust UK Smaller Companies Fund

March 2018 review

The Liontrust UK Smaller Companies Fund returned -1.0%* in March, compared with the -1.9% return from the FTSE Small Cap (excluding investment trusts) Index.


Equity markets extended their losses in March, with the prospect of a trade war led by the US and China taking up the mantle of investors’ primary focus. Donald Trump announced hefty tariffs on steel and aluminium imports, before outlining a range of tariffs targeted at imports from China. Equity investors globally fretted over the prospect of retaliatory measures and the risk of a downward spiral into a damaging bout of protectionism. As has been widely commented on, the first three months of 2018 represented the weakest quarter for global equities since Q3 2015.


While the majority of the portfolio’s negative monthly returns can be attributed to this environment of weak sentiment towards equities, there were one or two holdings that did experience negative developments. The most prominent was IDE Group (-36.2%), as investors marked the shares down heavily in response to the announcement of the sudden departure of its CEO. The cloud and IT managed services provider stated that CEO Andy Ross had resigned as part of a review of operations related to the cost reduction programme discussed in its February trading statement. IDE’s CFO is stepping up to take on operational responsibility.


Bookending the portfolio’s movers at the other extreme was Instem (+39.0%) which announced that “one of the world’s largest chemical products companies” would be adopting its Instem Cloud SAAS (software-as-a-service) solutions. Instem is targeting an increased level of SAAS sales as their recurring nature improves revenue visibility and lifts operating margins. Recurring revenues in excess of 70% constitute one of the three core intangible assets of the process. The Fund owns Instem for its current possession of the other two core intangibles – intellectual property and a strong distribution network. Full year results released later in the month showed a 19% increase in revenues to £21.7m with adjusted profit before tax more than doubling to £1.8m. Outlook comments were bullish, referring to the SAAS contract and a large SEND (Standard for the Exchange of Nonclinical Data) outsourced services contract win as underpinning a strong start to 2018.


An upbeat trading update from Focusrite (+30.5%) drove a spike in its share price, meaning that it has now more than doubled over the last year. Focusrite outlined that revenue for the six months to 28 February 2018 is expected to be over £38m, compared with £32m a year earlier. The audio hardware and software specialist cited particularly strong sales of Scarlett and Launchpad ranges over the Christmas period.


A number of portfolio holdings released interim or full year results in March and the majority were positively received. Investors in Learning Technologies (+12.2%) reacted well to 2017 results, leaving it as another portfolio holding to have more than doubled over 12 months. In January the company had notified the market that adjusted operating profit was likely to be materially ahead of expectations. March’s full year results confirmed operating profit at £14.0m, up 102% after revenue had risen by more than 80% to £52.1m. Learning Technologies operates within the fast growing digital learning space and states that current trading is ahead of its expectations. The company’s growth looks set to continue apace with the statement referring to a strong pipeline of potential acquisitions which are being explored.


Market research and data analytics group YouGov (+11.2%) grew revenues by 10% to £56.3m in the six months to 31 January 2018 with adjusted operating profit jumping by over 50% to £88m. The company has successfully increased sales from its Data Products & Services division so that they now account for 48% of the total, giving it equal prominence with its Custom Research business – one of the goals of its five year growth plan announced in 2015. YouGov is one of a selection of portfolio holdings that should benefit from the growth of the digital economy, helping its clients to harness the power of the data they generate and draw actionable insights from that information. YouGov also confirmed its full year expectations, noting that the second half of the year has begun strongly while its international spread of revenues should provide some insulation from Brexit uncertainty.


Scientific instruments specialist Judges Scientific (+11.8%) commented that 2017 saw the most favourable currency trends for exporters that it had experienced since 2009. This helped it increase revenues by 25% to £71m in 2017, with the majority of growth (17.7ppt) being organic in nature. The remainder is attributable to a full year contribution from four acquisitions made during 2016 as well as the impact of the Oxford Cryosystems purchase in July 2017. All regions saw sales growth, with the exception of the UK which fell 15% - a drop the company attributed to uncertainties surrounding research funding following the Brexit vote. This sales growth helped adjusted operating profit expand by over 50% to £10.9m. The company’s order book stands at 16.6 weeks’ sales, an improvement on the 14.8 week pipeline it had a year ago. While it notes that sterling has recovered from 2017’s lows, Judges Scientific commented that it is still at a level which is favourable for export sales.


Medica Group (-20.9%) was the outlier in March, releasing final results which disappointed the market. In 2017 the provider of outsourced teleradiology services registered 18% growth in revenue to £33.7m. This was driven by 24% and 19% increases for its NightHawk’ and ‘Routine Cross Sectional’ services respectively, reflecting both new client wins and an increase in volumes of CT and MRI scans at existing customers. The company noted a strong start to 2018 for sales and recruitment of radiologists, with the total now standing at 318. However, despite these strong headline growth numbers, shares in the company have been soft since a January trading update flagged some capacity constraints and Q4 demand which was “modestly below expectations”.


The Fund participated in the initial public offering of two companies during March, both of which were assessed as qualifying for investment due to possession of a strong distribution network and high recurring revenues. JTC is a Jersey-headquartered fund administrator with assets under administration of around US$85bn. Simplybiz Group provides a range of support services to a network of financial intermediaries numbering over 10,000 with around £50bn in assets under management.


Positive contributors included:

Instem (+39.0%), Focusrite (+30.5%), Learning Technologies Group (+12.2%), Judges Scientific (+11.8%) and YouGov (+11.2%).


Negative contributors included:

IDE Group (-36.2%), Medica Group (-20.9%), Sumo Group (-12.0%), Tatton Asset Management (-9.8%) and Clipper Logistics (-9.4%).



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 31.03.2018, total return (net of fees and income reinvested), bid-to-bid, institutional 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. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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.


This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, April 16, 2018, 2:08 PM