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.

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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.

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December 2020 Review

The Liontrust UK Micro Cap Fund returned 6.9%* in December. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 6.7% and 10.2% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 7.5%.


December was bookended by UK approvals for Covid-19 vaccines: first the Pfizer/BioNTech vaccine on the 2nd, followed by the Oxford/AstraZeneca version on the 30th.


Positive sentiment over the roll-out of vaccines in 2021 and a return to economic and societal normality allowed markets to add to November’s sharp gains, despite the emergence of a new strain of coronavirus which was spreading rapidly in the UK – leading to lockdown measures being tightened at Christmas rather than relaxed as planned.


The mood among UK investors may also have been boosted by the last-minute agreement of a trade deal between the UK and EU ahead of the transition period ending on 31 December. Whatever the merits (or otherwise) of the deal, the removal of some uncertainty will have been welcomed by most.


Within the Fund, D4t4 Solutions was one of the largest risers after announcing two significant contract upgrades, from a large UK bank and major US financial services provider respectively. Both contracts relate to D4t4 Solution’s Celebrus customer data platform and are expected to add around £3.5m in revenues in the year to 31 March 2021. The company commented that these contracts give it greater confidence in delivering a strong finish to its financial year, although it stopped short of upgrading its guidance.


As a provider of data and analysis to pubs and vending machine operators via its connected ‘internet-of-things’ (IoT) platform, Vianet Group has been having a much tougher time of it during the various levels of lockdown imposed during 2020. Interim results for the period to 30 September 2020 confirmed the heavy financial impact: revenues more than halved year-on-year to £4.1m while it slipped from an operating profit of £2m to a loss of £0.4m. While trading during the pandemic has been ahead of management’s own internal forecasts, this didn’t prevent the shares sliding through December.


A handful of the Fund’s holdings were involved in deal-making in December. Promotional products supplier Pebble Group supplemented the fast growth of the software side of its business (Facilisgroup) through the US$5.3m acquisition of two products from CoreXpand, a US developer: software which facilitates online pop-up shops and software that provides customer-facing solutions for complex online inventory stores. Together, Pebble Group expects the acquisition to support its ambition of becoming the leading e-commerce player in the promotional products industry by strengthening its e-stores offering. The announcement of the deal was accompanied by a short trading update outlining that trading has remained in-line with expectations.


Semiconductor designer and manufacturer CML Microsystems announced the sales of its Hyperstone storage division to Swissbit for US$49m. The disposal leaves CML Microsystems focused solely on the communications market. The company plans to use the disposal proceeds to finance growth in its ongoing businesses.


Shares in Nucleus Financial Group jumped after the company confirmed it was in discussions with a number of parties that were considering takeover offers: IntegraFin (a UK Smaller Companies Fund holding), Epris/James Hay Partnership, Aquiline Capital Partners and Allfunds. Later in the month, both Aquiline Capital Partners and Allfunds ruled themselves out of the running to make a takeover offer, as did Integrafin in early January.


Away from corporate activity, shares in SimplyBiz Group slipped back a touch during the month having risen strongly during the market’s November rally. This was despite the release of a trading update which re-affirmed 2020 earnings guidance and set some healthy targets for future years. SimplyBiz anticipates organic growth of between 5% and 7% per annum over the next two to three years, with an EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of between 35% and 40%.


Molecular diagnostics group Yourgene Health also lost some ground after releasing interim results covering the six months to 30 September. Although revenues increased 5% year-on-year to £8.2m, EBITDA dropped from £0.4m to a £0.2m loss after the company increased admin expenses by 21% to £5.2m. Yourgene is investing in growth as it anticipates a new wave of diagnostic technologies in coming years; in August it raised £15m via a share placing to support these investments, which included the acquisition of Coastal Genomics. Yourgene’s core business was impacted by the pandemic but it has developed Covid-19 testing products which generated £0.5m over the six months and have already exceeded this level in the first two months of the second half.


Positive contributors included:


D4t4 Solutions (+35%), Nucleus Financial Group (+33%), CML Microsystems (+29%), Fonix Mobile (+28%), Accesso Technology Group (+27%).


Negative contributors included:


Vianet Group (-27%), Yourgene Health (-8.5%), SimplyBiz Group (-7.6%), Gateley Holdings (-7.3%) and James Cropper (-6.4%).

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