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.

January 2020 Review

The Liontrust UK Micro Cap Fund returned 3.4%* in January. For comparison, the FTSE Small Cap (excluding investment trusts) Index returned 0.1%, the FTSE AIM All-Share Index returned -0.7% and the average return of funds in the IA UK Smaller Companies sector was 0.5%.


Trading updates covering various periods to 31 December accounted for some of the Fund’s largest stock moves in January. However, the biggest gain came courtesy of Frenkel Topping (+27.8%), which jumped following confirmation of bid interest. The asset manager and financial adviser announced a preliminary approach from Harwood Capital, which should confirm its intention to make a formal offer or otherwise by 25 February.


Another of the Fund’s holdings, Nasstar, dropped out of the portfolio during the month due to a takeover completing. On 17 December Mayfair Equity Partners announced an offer at 12.75p a share which completed during January.


Having featured as a large detractor in December, Sopheon (+24.2%) recovered after issuing another trading update. It had previously warned that a number of contracts expected to complete in Q4 2019 were unlikely to be signed until 2020. Its latest update suggests that it managed to reduce this slippage by completing a good number of deals in December. In Q4 as a whole, 23 licences were signed, of which 11 were new customers. The company now expects to deliver revenues and profits which are in line with market expectations.

A busy month for trading statements also saw vehicle tracking system specialist Quartix Holdings (+18.7%) give an update on the period to 31 December 2019. Over the year it generated 29% growth in new installations to 43,827 and a 22% increase in its fleet subscription base to 150,640 units. The company’s shares moved higher on comments that it expects revenue, profit and free cash flow to be slightly ahead of market forecasts. 


An interim trading update from Dotdigital (+19.0%) detailed 15% growth in revenue to £23.1m in the six months to 31 December following a 14% increase in average revenue per user to £999/month. The software-as-a-service provider of omnichannel marketing automation expects profits for the period to be in line with market expectations.


Instem (+18.9%) grew revenues by 12% in 2019 whilst EBITDA (earnings before interest, tax, depreciation and amortisation) is on course to meet its expectations. The company provides IT services to the global life sciences market. An upbeat outlook from the IT group described the market as buoyant and identified organic growth, acquisitions and margin improvement as targets for the company as it looks to maintain momentum.


An update from Quixant (-23.6%) was more concerning. Quixant designs and manufactures technology platforms for the global slot machine and pay-to-play gaming industry. In September 2019 it issued a profit warning due to weaker-than-expected demand for its customers’ gaming machines. This soft demand has subsequently been more pronounced and lasted longer than it anticipated, meaning that revenue and profits for 2019 are now both likely to fall short of already-reduced expectations. Quixant is reviewing its cost base moving into 2020, to protect against further sales weakness.


The Fund added a position in Concurrent Technologies, a long-time holding in the UK Smaller Companies Fund that also sits within the UK Micro Cap Fund’s target market cap range. Concurrent Technologies manufacturers computer components that are embedded in products for industries such as aerospace & defence, healthcare and telecoms. The company possesses significant intellectual property, one of the core intangible assets the Fund’s investment process targets.

Positive contributors included:

Frenkel Topping (+27.8%), Sopheon (+24.2%), Bioventix (+19.0%), Dotdigital (+19.0%) and Instem (+18.9%).


Negative contributors included:

Quixant (-23.6%), Beeks Financial Cloud Group (-10.4%), K3 Capital Group (-9.7%), Crimson Tide (-8.3%) and Simplybiz Group (-7.6%).

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. 
We provide information about investments but do not offer personal advice and recommendations. We do not hold responsibility for assessing the suitability of an investment or evaluating the risks of such an investment for you.  If you are in any doubt as to these risks or the suitability of an investment.  Y
ou should seek independent advice.