Liontrust UK Smaller Companies Fund

The Liontrust UK Smaller Companies Fund returned 1.1%* in January. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 1.6% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.6%.

The vaccine roll-out continued apace in the UK, and there was some evidence emerging by the end of the month that cases of the virus had peaked. Given the threat from different variants of the virus, Prime Minister Johnson refrained from setting out a set timetable for the reopening of the economy but the speed of the vaccination programme gave investors reasons to be optimistic.

For the Fund, the focus was on a spate of company updates which highlighted how the pandemic has affected trading. Legal and professional services company Gateley Holdings (+18%) said its swift and effective cost management initiatives since the start of the pandemic meant that, despite a 2.6% decline in revenue in the six months to 31 October 2020, pre-tax profit rose 9.8%. The stand-out division during the period was Property, due to the long-term nature of client projects and strong demand in logistics and housebuilding. Gateley added that positive trading momentum has continued into the second half of its financial year.

Next Fifteen Communications Group (+18%) saw its shares rise after stating that the final quarter of its financial year ending 31 January 2021 was ahead of management’s expectations. The digital marketing specialist expects revenue to increase 9% and noted “strong growth” in profit margins, led by robust performances from its B2B technology focused agencies such as Activate, Twogether and Agent3. It added that it feels cautiously optimistic about trading in the next financial year as it capitalises on opportunities arising from the transition to an increasingly digital-driven economy.

dotdigital Group (+12%) is another holding which has been resilient through the pandemic. It recorded a 22% increase in organic revenue from continuing operations in the six months to 31 December 2020. The company, which provides software-as-a-service for omnichannel marketing automation, said adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) and adjusted profit are both expected to be in line with elevated market expectations. Like Next Fifteen, dotdigital commented that it stands to benefit from the acceleration towards a digital economy resulting from the pandemic.

Unlike Next Fifteen and dotdigital, recruitment company Robert Walters (+16%) has found trading to be more difficult during the pandemic. In a fourth quarter trading update it reported a 24% decline in net fee income as market conditions remained challenging. However, this was an improvement from the 33% and 31% respective falls in the second and third quarter. In addition, the company delivered on its cost reduction targets meaning full-year profit is now likely to be ahead of expectations.

Covid-19 also weighed on gift packaging specialist IG Design’s (-20%) trading, as it reported a 9.2% decline in revenues (excluding its recent acquisition of CSS Industries) for the nine months to 31 December 2020. Despite this, there were encouraging signs with Christmas products performing robustly and the craft and creative plays segment in the US showing strong momentum. The group maintained its full-year guidance, noting continued macroeconomic uncertainty.

accesso Technology Group (-12%), Learning Technologies Group (-9.7%) and Hilton Food Group (-9.3%) ended the month lower despite indicating that their results are expected to come in ahead of consensus. accesso noted that the solid trading performance it reported on in November continued during the rest of 2020, and it anticipates reporting revenue of at least US$55m, ahead of its own expectations. However, the provider of queuing and ticketing technology to the leisure industry said that the continued impact of coronavirus means lower venue attendance is expected during the first half of 2021.

Learning Technologies, a provider of digital learning and talent management, said a strong performance at the end of the year means the group expects to deliver revenue no less than £131m and adjusted EBIT of at least £40m. Cash levels were also much higher than market forecasts, leaving it in a strong position to continue with its acquisition strategy.

Food packaging specialist Hilton Food Group performed ahead of expectations as the shift to more home food consumption drove volume and sales growth. The company’s expansion plans in Belgium and New Zealand underpin its prospects for 2021 and it continues to look for further growth opportunities. 

Quartix Holdings (+13%) said it expects to report growth in revenue and adjusted EBITDA in 2020, displaying resilience in trading during the pandemic. After a difficult first half, the vehicle tracking software provider delivered a strong performance in the second half to record a 15% increase in its vehicle subscription base. Meanwhile, sustainable investor Impax Asset Management (+15%) saw a 25% increase in assets under management (AuM) in the fourth quarter, taking its total to a new record high of £25bn. The AuM figure was boosted by £2.8bn from net inflows and £2.2bn from market performance.

During the month, the team decided to exit their position in Castings due to the increased risk profile of the company and concerns over the future return prospects of the business.

OnTheBeach, one of the UK’s leading online retailers of beach holidays, was added to the portfolio. The managers believe the company possesses strong intangible assets in several areas including distribution, IP and brand, while also having a strong owner manager culture. Its asset light model of not owning planes or hotels means it is well placed to take market share from weaker competitors, something it has done since it was started in 2004. Today the company has c.20% market share of the short haul online beach market in the UK, and is looking to expand into several other growth avenues such as long haul and other international markets.

Positive contributors included:

Gateley Holdings (+18%), Next Fifteen Holdings (+18%), Robert Walters (+16%), Impax Asset Management (+15%) and Brooks Macdonald Group (+13%).

Negative contributors included:

IG Design (-20%), accesso Technology Group (-12%), Mind Gym (-10%), Learning Technologies Group (-9.7%) and Hilton Food Group (-9.3%).

Discrete years' performance** (%), to previous quarter-end:

*Source: Financial Express, as at 31.01.21, 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 31.12.20, 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.

DISCLAIMER

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.