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.

October 2020 Review

The Liontrust UK Micro Cap Fund returned -1.8%* in October. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 1.9% and -1.1% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.4%.


The Covid-19 infection rate continued to accelerate in the UK and elsewhere, dampening investor sentiment. Even more worryingly, hospitalisation rates also climbed higher, resulting in tighter social restrictions. In parts of Europe, including France and Germany, lockdowns were reinstated and the UK followed suit on the final day in October.           


Investors also had one eye on the US, where hopes of a stimulus announcement before the presidential election fizzled out. Talks have been ongoing for months and, as the pandemic continues to erode economic activity, a new fiscal package is a high priority to support the US economy through the crisis.


Within the UK stockmarket, large caps underperformed, with the FTSE 100 falling 4.8% compared to the FTSE 250’s marginal decline of 0.5% and the FTSE Small Cap (ex IT)’s 1.9% gain.


There were a number of trading updates from the Fund’s technology companies, largely showing robust trading through the pandemic. Customer engagement software group Netcall (+30%) said it continued to see strong demand for its products despite the disruption from Covid-19. In its full year results to 30 June 2020, the company recorded a 10% increase in revenue and 29% increase in adjusted earnings before interest, taxes, depreciation and amortisation. Management stated that trading during the first three months of the current financial year is strong and ahead of the previous year. 


Vianet Group (-21%) is a provider of data and analysis to pubs and vending machine operators via its connected ‘internet-of-things’ (IoT) platform and its shares were hit following new restrictions announced in the UK for the hospitality sector. The company’s shares recovered some lost ground after it noted that trading in the first half of its financial year had been ahead of management’s forecasts, with improvements in both operating profit and cash.


Attraqt Group (+19%), an online shopping software company, saw revenue improve by 13% in the first half of 2020, and its pre-tax loss narrow to £1.3m from £1.9m in the previous year. The pandemic restricted new business wins during the period, but the company said momentum has improved in the third quarter, with bookings in excess of £1.1m. Attraqt also announced the purchase of Aleph Search, an AI-powered search technology company, which it said will add a “Google-like” search experience for its eCommerce customers. To help fund the deal, the company raised £4m through an equity placing, which the Fund participated in.


Medical device group Inspiration Healthcare Group (+27%) expects to materially exceed market expectations for its full financial year after posting impressive results for the six months to 31 July 2020. The company recorded a 77% increase in total revenue, while adjusted operating profit nearly quadrupled to £2.1m. The group benefitted from capital equipment orders from the NHS being brought forward and some pent-up demand in its order book from the previous financial year. It also saw £2.9m worth of one-off orders from the NHS for ventilators and ancillary products to support the pandemic response. The excellent interim performance allowed the group to commence a progressive dividend policy.


It was also the first set of results since the integration of neonatal medical equipment business SLE. SLE is a transformative acquisition which was part-funded by a £17m over-subscribed placing earlier this year – a fund-raise equivalent to well over half the company’s market capitalisation at the time.


Molecular diagnostics group Yourgene (-20%) saw trading deteriorate in its core international markets which were heavily impacted by Covid-19 restrictions. The 25% decline in international revenue was offset by 40% and 80% respective rises in UK and European revenue, meaning group revenue rose 5% in the six months to 30 September. The full year outlook was reassuring, with core laboratory customers returning to normal patterns. The company has also increased its Covid-19 testing capacity to 10,000 tests a month, which is expected to result in £1m of monthly revenue.


Nucleus Financial Group’s (-12%) shares declined despite seeing a 2.6% year-on-year increase in assets under management (AuM) to £16.1bn in the third quarter. Net inflows were down 26% as a consequence of the ongoing pandemic but were up 45% year-to-date compared with the same period in 2019.


Mind Gym (-12%) was another faller after its interim trading update for the six months to 30 September highlighted the severity of the pandemic’s impact on the business. Revenue is expected to be 40% below the previous year and, despite cost cutting measures, the group anticipates an adjusted pre-tax loss of between £1.0m-£1.5m. More positively, trading in October has been markedly better. Revenue has increased materially and the reduction in costs meant the group has been operating profitably. The corporate training company therefore expects to see significant growth in both revenue and profit in the second half of the financial year compared to the first.


The Fund made two sales during October: Sumo Group and Pennant International Group. Sumo Group was sold after its market cap exceeded the £275m level at which this Fund begins a managed exit from positions. Pennant exited after management equity ownership fell below the 3% level required by the Economic Advantage investment process to hold a small cap company.


Two new holdings were also added: Eagle Eye Solutions Group and Fonix Mobile. Eagle Eye provides a B2B software platform which allows large retail clients to manage customer loyalty schemes, offers and promotions. We believe it possesses all three of the key Economic Advantage intangible assets under our investment process: intellectual property in the software itself, a strong data-driven distribution network because the platform sits at the very heart of the customer’s marketing technology stack, and a high percentage of recurring revenues from SaaS licence fees and ongoing high-volume, low-value transaction fees.


Fonix Mobile is a carrier and SMS billing company focused on niche vertical markets such as media and broadcast, gaming and charities. The company’s competitive advantage stems from its proprietary technology, which is able to process, analyse and efficiently route high-frequency transactions very quickly, and also a distribution advantage thanks to a network of direct connections to all the key mobile operators in the UK.


Positive contributors included:

Netcall (+30%), EKF Diagnostics (+27%), Inspiration Healthcare Group (+27%), Attraqt Group (+19%) and Sumo Group (+14%).


Negative contributors included:

Vianet Group (-21%), Yourgene Health (-20%), Belvoir Group (-14%), Mind Gym (-12%) and Nucleus Financial Group (-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.