Liontrust UK Micro Cap Fund

The Liontrust UK Micro Cap Fund returned 0.0%* in August. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 0.7% and -1.7% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -0.9%.

The FTSE All-Share Index mirrored US markets in experiencing a V-shaped dip and rebound that left it finishing August higher than it started it, but a look at the market cap breakdown shows that the recovery was less than complete at the mid and small cap levels. While the FTSE100 recorded a solid 0.9% gain for the month, the mid-cap FTSE250 Index lost 2.0% and the FTSE AIM All-Share Index dropped -1.7%, albeit the relatively limited group of stocks in the FTSE Small Cap (ex-investment companies) Index returned 0.7%.

August began with a widely expected 25 basis points interest cut from the Bank of England, but attention swiftly shifted to the US where weaker than expected employment data prompted yet another shift in investor sentiment, undermining confidence in a soft economic landing and reviving recession fears. The mid-month recovery was driven by a clear indication from the US Federal Reserve that it will cut rates in September.

Cyber security software specialist Intercede Group (+36%) has had an excellent 2024 so far. Early in the year it upgraded financial guidance on the strength of trading, before June’s interims consolidated share price gains with a positive update on its acquisitive growth strategy as well as upbeat comments on pipeline visibility. In August, it announced a strategic partnership with Microsoft to combine Intercede’s credential management systems with Microsoft Entra ID to allow enterprise administrators to create phishing-resistant FIDO (Fast IDentity Online) passkeys. Although no financial details were disclosed in the announcement, the potential impact of the agreement is very significant, a fact reflected in the shares 36% monthly gain.

Focusrite (-21%) is a global music and audio products group that develops and markets proprietary hardware and software products used by audio professionals and amateur musicians. Its shares have been under pressure recently due to client destocking and other post-Covid headwinds. A trading update outlined that, while revenues for the year to 31 July will be in line with expectations at around £157 million, higher shipping and logistics costs (due to the Red Sea crisis and related congestion at ports) have constrained EBITDA to £25 million, below expectations. Focusrite now expects higher shipping costs to persist into the new financial year.

Beeks Financial Cloud Group (+18%) also moved higher on positive contract updates. Having provisionally announced a cloud contract with “one of the largest exchange groups globally”, in February, Beeks announced that the deal has now received regulatory approval and service deployment has commenced. In more good news, the financial markets cloud computing and connectivity provider has now deepened its relationship with the Johannesburg Stock Exchange. Beeks originally launched services with JSE in September 2023 before receiving a large contract extension in March 2024 due to stronger-than-anticipated customer demand. The contract has now been extended to include JSE’s Terco data centre over a multi-year period.

Zoo Digital Group (-28%) characterised the year to 31 March 2024 as “an extremely challenging year for the film and television entertainment industry and all those businesses that operate in this wider ecosystem”. As has been flagged in a series of investor updates, Zoo Digital’s revenues were heavily hit, with August’s full-year results showing a 55% fall to $41 million. While the review of the year makes for sober reading for investors, Zoo’s recent comments on demand recovery – in this statement and May’s trading update – have been more positive. In the first quarter of the new financial year sales were up 35% quarter-on-quarter. Zoo Digital expects the industry to continue to recover steadily, allowing the company to hit its former levels of activity by late 2025.

Bigblu Broadband (-16%) shares were down in advance of interim results released at the end of the month. The company is a provider of fixed wireless and satellite broadband solutions to rural areas, exclusively in Australia following the disposal of its Norwegian operations. The results were in-line with its expectations, with like-for-like revenues down 8% as it looks to migrate customers to higher-margin service packages.

Calnex Solutions’ (+12%) AGM statement in August provided a more reassuring update on trading, describing the telecoms market as remaining challenging but also commenting on the encouraging early successes of new product releases. It also confirmed that trading remains on track to meet market expectations for the financial year to 31 March 2025. This follows shares having tumbled last year as it warned that the macroeconomic backdrop was leading many of its telecoms customers to take a cautious approach to investing, meaning lower demand for the test and measurement tools Calnex provides to the sector

Tribal Group (-10%) slid after releasing interim results, although the statement appeared to draw a line under the Nanyang Technology University contract dispute which has weighed on the shares the last two years, while also confirming that it expects to hit market financial expectations for the full year.

Positive contributors included:

Intercede (+36%), Beeks Financial Cloud Group (+18%), Nexteq (+16%), Science Group (+13%) and Calnex Solutions (+12%).

Negative contributors included:

Zoo Digital Group (-28%), Focusrite (-21%), Bigblu Broadband (-16%), Microlise Group (-12%) and Tribal Group -10%).

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

*Source: Financial Express, as at 31.08.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.06.24, total return (net of fees and income reinvested), bid-to-bid, institutional class.

^† Julian Fosh is on a leave of absence. The Economic Advantage funds continue to be managed by the other members of the team in Julian’s absence.

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.

The Fund may invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing. As the Fund is primarily exposed to smaller companies there may be liquidity constraints from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. In addition the spread between the price you buy and sell units will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.

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