UK Micro Cap Fund

Economic Advantage

The UK Micro Cap Fund is managed by the Economic

Advantage team – Anthony Cross, Julian Fosh, Victoria Stevens

and Matt Tonge – and invests in UK headquartered companies

with high managerial ownership and a market capitalisation of

under £150 million.

Why micro caps ?

Micro caps offer the opportunity to capitalise on the fast early

growth phase of dynamic, entrepreneurial companies:


• The smallest listed companies, as measured by the Numis 1000

Index, have outperformed the FTSE All-Share Index by more than

15 times since 1955.

• Micro caps are not as well covered by analysts as the rest of the

UK stock market.

• High levels of management equity ownership are much more

common among the smallest companies on the market, which we

believe acts as a strong motivator.

• Micro caps can take share from incumbents in markets

experiencing disruptive change.


• They can create greenfield opportunities for innovative products

and services.

How the Liontrust UK Micro Cap Fund is differentiated

The award-winning Economic Advantage team manages the Fund. Victoria Stevens and Matt Tonge are AAA rated by Citywire, and

Anthony Cross and Julian Fosh are FE Alpha Managers for 2019.

The Fund is managed using the Economic Advantage investment process. This process has been applied to the management of funds at Liontrust for more than 20 years.

The process seeks to identify companies that possess intangible assets which produce barriers to competition. These provide a durable competitive advantage that allows the companies to defy industry competition and sustain a higher than average level of profitability for longer than expected.

In the fund managers’ experience, the hardest characteristics for competitors to replicate are three classes of intangible assets:

Intellectual property, strong distribution channels and significant recurring business.

Since launch in March 2016, the Fund has returned 58.4% to the end of September 2019 against 40.5% by the average fund in the IA UK Smaller Companies sector, 20.1% by the FTSE Small Cap (ex-Investment Trusts) Index and 31.3% by the FTSE AIM All-Share Index.

Liontrust UK Micro Cap was the top performing Fund in the IA UK Smaller Companies sector in 2018.

Since launch the Fund has the lowest volatility of any fund in the IA UK Smaller Companies sector and the third lowest maximum drawdown.

Meet Victoria Stevens and Matt Tonge

Have more than 60 years of combined investment experience.

Victoria Stevens and Matt Tonge joined the Economic Advantage

team in 2015 to research and analyse investment opportunities

primarily across the small cap universe. In Victoria’s previous role

as deputy head of corporate broking at FinnCap, she built up an

extensive knowledge of the smaller company investment universe.

Matt added trading and analytical expertise to the team, having

spent the previous 12 years on the Liontrust dealing desk, latterly

winning an industry award for his work in mid and small cap stocks.

July 2020 Review

The Liontrust UK Micro Cap Fund returned 2.1%* in July. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned -2.4% and 0.2% respectively. 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 declines 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 provided an update on the effects of the pandemic on trading. 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.


Belvoir Group (+21%) said that it was still on track to meet its pre-Covid 19 forecasts, as revenue and profit for the first half of the year were comfortably higher than the same period last year. The estate agent and financial services company saw subdued trading in the second quarter when lockdown was imposed, but since the restrictions on the sector were lifted in mid-May it has observed a surge of activity due to pent-up demand. The impact of stamp duty reductions also added to the company’s positive outlook.


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. 


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.


Energy procurement consultant Inspired Energy (-13%) raised £35m through the issue of new shares and an open offer in order to acquire the 60% of Ignite Energy that it didn’t already own. The Fund participated in Inspired’s fund raising. The purchase of Ignite will broaden the company’s Environmental Social and Governance offering, an area of increasing importance to its client base.


Totally’s (-12%) full-year results to the end of March 2020 showed a 36% increase in revenue, but its pre-tax loss widened to £3.4m – in part due to a £2.8m amortisation charge. Excluding this amortisation charge, adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) rose to £4.0m from £1.1m last year. The healthcare service provider said it is unable to give guidance for the next financial year given the uncertainty of the impact of the Covid-19 crisis on the NHS. However, it remained confident that it will be able to grow cash flow and committed to its progressive dividend policy.


After a very strong run year-to-date, dotdigital exited the portfolio in July after its share price exceeded the £250m limit above which the fund managers look to gradually sell the stock. The managers added Gear4music Holdings to the portfolio. G4M is the largest retailer of musical instruments and music equipment in the UK (c7.8% market share). The company is headquartered in York and has additional showrooms and distribution centres in Sweden and Germany. The majority of its sales are made online via a bespoke e-commerce platform, which is localised for 19 countries across Europe. The Fund owns the shares on the basis of its intellectual property and distribution network. We believe that the IP underpinning the platform and its well-developed distribution network gives it significant barriers to entry and pricing power.


Positive contributors included:

Cello Health (+44%), Beeks Financial Cloud (+22%), Sopheon (+22%), Belvoir Group (+21%) and Cohort (+18%).


Negative contributors included:

Nucleus Financial Group (-17%), James Cropper (-14%), Inspired Energy (-13%), Cerillion (-12%) and Totally (-12%).

Key risks

Please remember that past performance is not a guide to future performance and the value of an investment and any 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. The portfolio is primarily invested 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.


Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document 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. Citywire information is proprietary and confidential to Citywire Financial Publishers Ltd (‘Citywire’), may not be copied and Citywire excludes any liability arising out of its use. 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.2019.10 


The value of investments can go down as well as up and you may get back less than you invested. 
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ou should seek independent advice.