Liontrust UK Micro Cap Fund

The Liontrust UK Micro Cap Fund returned 5.7%* in March. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 6.8% and 1.3% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 4.3%.

Market gains continued to be driven by the prospect of economic recovery from Covid-19 restrictions. Within the UK market’s solid rise, individual stock movements were heavily influenced by the reporting season for 2020 results.

March’s key share price moves stemmed from a variety of trading updates, acquisitions and contract wins. The largest riser was Mercia Asset Management (+30%), which rallied very strongly after a trading statement upgraded earnings guidance for the year to 31 March 2021. Revenue growth in the second half of its financial year and lower-than-anticipated staff costs put adjusted operating profit on track to “materially” exceed analysts’ forecasts.

Inspiration Healthcare (+28%) was boosted by the receipt of Japanese regulatory approval for its SLE6000 neonatal ventilator. The company's Japanese distributor has placed an initial order totalling around £400,000. In further positive news, Inspiration Healthcare reached a new three-year agreement with Micrel to continue distributing its infusion devices in the UK and Ireland.

Instem (+24%) announced two acquisitions in March, paying up to £8.5m for The Edge Software Consultancy Ltd and as much as US$31m for d-Wise Technologies. Instem is executing an acquisitive growth strategy as it seeks to consolidate software and tech-enable service suppliers in the pharma and life sciences market. Both deals are expected to be earnings enhancing in 2021.

Orchard Funding Group (-11%) detailed the extent to which Covid-19 has reduced demand for its insurance premium finance and professions funding. Lending volumes in the six months to 31 January 2021 fell 21% year-on-year, leading to similar drops in revenue and net interest income. Lending has been particularly hard hit in leisure, school fees and static caravan fees.

Shares in Yourgene Health (-12%) also slid in March despite the only newsflow for the company being a couple of small, positive announcements. It signed its first US supply agreement – a deal with an unnamed large US clinical laboratory group worth around US$1.5m over five years. The molecular diagnostics group also announced that it had been added to the UK government’s approved list of providers of the two Covid-19 tests which are now mandatory for international arrivals.

Sopheon’s (-7.5%) share price movement during the month also looked to be slightly at odds with its in-line 2020 results announcement and upbeat outlook comments. Revenue for the year was flat on 2019 at US$30m but its transition to a software-as-a-service model yielded an increase in recurring revenues from US$15.9m to US$18m. Adding its consulting backlog and license sales so far in 2021 to its recurring revenue base yields revenue visibility for 2021 of US$24.5m, up from US$21.2m a year ago.

A new position in Record was added to the Fund. Record is a specialist currency management business, helping institutional clients (pension funds, asset managers, foundations, endowments, etc.) hedge their FX risk and/or make a return from the currency markets. The business is undergoing a change in strategy under its relatively new CEO Leslie Hill, who is looking to drive higher returns via innovation. Almost 100% of Record’s revenue is under recurring contract, one of the core Economic Advantage assets the team looks for.

During the month, SimplyBiz changed its name to Fintel, a move which reflects its target to become a leader in the provision of financial services sector data and expert intelligence embedded in digital technologies.

Positive contributors included:

Mercia Asset Management (+30%), Inspiration Healthcare (+28%), Instem (+24%), Vianet (+22%) and Belvoir Group (+19%)

Negative contributors included:

Yourgene Health (-12%), Orchard Funding Group (-11%), Intercede (-9.9%), Sopheon (-7.5%) and Netcall (-6.6%).

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

*Source: Financial Express, as at 31.03.21, 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 31.03.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

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.