Liontrust UK Smaller Companies Fund

November 2019 review

The Liontrust UK Smaller Companies Fund returned 5.2%* in November. For comparison the FTSE Small Cap (excluding investment trusts) Index returned 3.5% and the average return of funds in the IA UK Smaller Companies sector was 4.8%.


US-China trade talks once again dominated investor attention. Although the narrative seemed to shift on a daily basis, the speculation was not backed up with any real evidence of substantive developments, so there was no obstacle to investors choosing to adopt a risk-on mood.


Within the FTSE All-Share’s 2.2% rise, the FTSE100 gain of 1.8% was once again outstripped by returns from mid and small caps. As the UK election campaign kicked off, sterling built on October’s gains, albeit in more modest terms: a 0.8% trade-weighted gain followed last month’s 3.4% rally.


Statpro exited the portfolio in November due to completion of Confluence Technologies’ 230p a share acquisition, while another – Clipper Logistics (+35.0%) – became the latest holding to receive a takeover approach. Clipper responded to press speculation by confirming a preliminary approach from Sun European Partners. The potential acquirer is rumoured to be working with Clipper’s Executive Chairman Steve Parkin on a management buyout. No offer levels have been disclosed yet, but shares in Clipper jumped to around £3, taking them back to levels seen in May of this year, before a profit warning led to selling pressure over the summer months. The Takeover Code requires Sun European Partners announce by 18 December whether it has a firm intention to make an offer.


African Swine Fever was the reason behind the portfolio’s heaviest fall. The impact on Chinese pigs has significantly knocked sales at Eco Animal Health Group (-39.2%) in the six months to 30 September. The producer of animal pharmaceuticals issued a trading update in November which warned that interim results are now expected to be below last year’s level. China-US trade tensions exacerbated the situation as US swine producers had limited ability to increase exports to capitalise on the pork shortage in China. Eco Animal Health’s sales to China have fallen 60% year-on-year. Eco Animal Health also commented that the appointment of new auditors had helped uncover accounting issues which are likely to require the restatement of its last two set of results.


Judges Scientific (+23.9%) announced that it would be paying out £2 a share via a special dividend, amounting to £12m in total. Judges Scientific intends to continue with an acquisitive growth strategy, but the cash was identified as excess funds due to the strength of its balance sheet and cash generation, as well as its ability to borrow on improved terms.


Ideagen (+23.0%) expects both interim revenue and earnings to be significantly ahead of the prior year comparable. As the company shifts from a perpetual licence to a Software-as-a-Service subscription model, its recurring revenues are increasing. A combination of organic growth and acquisitions lifted annual recurring revenue by 20% to £43.9m to account for over 70% of the total. At these levels, Ideagen’s recurring revenue stream is likely to qualify it for possession of the third intangible asset we look for in companies. In our view, Ideagen already has intellectual property and distribution network intangibles, so it would join the ranks of stocks possessing all three core Economic Advantage intangible assets.


Plexus Holdings (-26.1%) shares slid on a warning that next year’s revenues will be materially lower as the company focuses on converting opportunities in its project pipeline following a significant business restructuring. Having sold its jack-up exploration wellhead rental business, Plexus is now a far less capital-intensive play on the sale of products which licence its proprietary POS-GRIP wellhead technology.


Tracsis was sold from the Fund on account of its directors’ equity ownership falling below the 3% level the managers require of all holdings after the departure of long-standing CEO and large shareholder, John McArthur, earlier this year. The position in Intercede was also closed. While the fund managers are still confident in the company’s prospects, its small position size and market cap left it as a de minimis position.

Positive contributors included:

Clipper Logistics (+35.0%), Keywords Studios (+26.8%), Judges Scientific (+23.9%), Ideagen (+23.0%) and Mortgage Advice Bureau (+17.6%).

Negative contributors included:

Eco Animal Health Group (-39.2%), Plexus Holdings (-26.1%), K3 Business Technology (-10.9%), Nucleus Financial Group (-8.3%) and Next Fifteen Communications (-4.3%).


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 30.11.2019, 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 30.09.2019, total return (net of fees and income reinvested), bid-to-bid, primary class.

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.

Tuesday, December 10, 2019, 2:55 PM