Liontrust UK Smaller Companies Fund June 2021 review | Insights

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust UK Smaller Companies Fund returned 1.7%* in June. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 0.9% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 0.5%.

The UK equity market added modestly to this year’s strong gains as investors waited to see whether the inflationary forces emerging from the economic recovery are likely to prompt any action from central banks. The constant uncertainty on the public health front also remains, with much debate over the interaction of the spread of new Covid-19 strains such as the delta variant and the planned removal of social restrictions.

Within the portfolio, although full-year results to 31 March confirmed an 18% revenue drop for Mind Gym (+30%), they also showed rapidly improving momentum as the year progressed. This is illustrated by its revenue growth each quarter: -40% year-on-year in Q1; -38% in Q2; -2% in Q3; and +15% in Q4. The corporate training business doubled its digitally enabled revenues, which now account for almost 80% of the total. Mind Gym has experienced a strong start to the new year and expects revenues in the 12 months to 31 March 2022 to at least recover their pre-Covid levels. It will continue investing in its digital products, meaning that it expects only to break even this year, with a return to profitability expected the following year.

Shares in Next Fifteen Communications (+15%) rose sharply after a trading update revealed an acceleration in growth that pushed performance ahead of its expectations. Revenues rose 21% year-on-year in the three months to 30 April – including 17% organic growth – and growth accelerated further at the start of Q2.

The largest faller in the portfolio was On The Beach Group (-22%). Its revenues dropped dramatically in the six months to 31 March 2021 when compared with a year earlier – a period largely unaffected by Covid-19. As a holiday retailer, the drop-off seems largely unavoidable given the heavy travel restrictions in place across the period. Given what On The Beach describes as a cautious UK government approach to reopening leisure travel, it has accepted that summer 2021 volumes will be difficult to boost and is instead focusing on summer 2022. In light of the short-term uncertainty around leisure travel, On The Beach maintained its suspension of full-year guidance on revenues and profitability.

Currency headwinds weighed on RWS Holdings (-12%) as it issued interim results covering the six months to 31 March 2021. Although adjusted profit before tax for the six months was ahead of management’s expectations (+53% to £51m), adverse currency trends are affecting the second half of its year. The translation and language services specialist generates a significant proportion of revenues in US dollars, but the dollar has weakened relative to sterling in recent weeks.

Shares in Craneware (-9.9%) dipped as it announced a £140m placing to part finance the US$400m acquisition of Sentry, a leading provider of software-as-a-service solutions for pharmacy procurement. It has a customer base which includes over 600 US hospitals, only 25% of which are existing Craneware customers. The placing price of 2200p represented a 10% discount to the share’s prior level; the Fund was able to participate in the capital-raise. Craneware also updated the market on current trading, stating that it is confident in meeting market expectations for the year to 30 June.

Positive contributors included:

Mind Gym (+30%), Midwich Group (+18%), Next Fifteen Communications (+15%), Learning Technologies Group (+11%) and Gateley Holdings (+8.8%)

Negative contributors included:

On The Beach Group (-22%), RWS Holdings (-12%), Craneware (-9.9%), Judges Scientific (-8.3%) and Hilton Food Group (-6.9%).

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

	Jun-21	Jun-20	Jun-19	Jun-18	Jun-17
Liontrust UK Smaller Companies I Inc	46.7%	1.9%	2.3%	18.7%	39.9%
FTSE Small Cap ex ITs	65.2%	-12.3%	-8.6%	6.4%	28.4%
IA UK Smaller Companies	53.1%	-6.5%	-6.2%	17.2%	36.3%
Quartile	3	1	1	2	2

*Source: Financial Express, as at 30.06.21, 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 30.06.21, total return (net of fees and income reinvested), bid-to-bid, primary class.

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Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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.

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.

Disclaimer

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. 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, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.