- External influences played a significant role in shaping market dynamics in November.
- Craneware and AB Dynamics were among the top performers on strong earnings releases.
- The position in Eckoh was exited during the period in advance of the expected completion of its takeover.
The Liontrust UK Smaller Companies Fund returned 3.9%* in November. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -0.4% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 1.2%.
UK equity markets experienced a largely positive month, with the FTSE 100 index recording a 2.6% gain, the mid-cap FTSE250 Index rising 2.1% and the FTSE All Share returning 2.5%. Among the smaller capitalisation indices however, the FTSE AIM All-Share Index dropped 0.4%, and the FTSE Small Cap (ex-investment companies) Index fell 0.6%.
External influences played a significant role in shaping market dynamics. Global volatility was sparked by the re-election of U.S. President Donald Trump, who announced new tariffs on imports from key trade partners, including a 25% tax on goods from Mexico and Canada and a 10% tariff on Chinese products.
It was encouraging to see some evidence of renewed investor confidence in UK-focused funds, which saw inflows for the first time since mid-2021, although returns to the smaller cap end of the market remained depressed in November.
We feel that there is currently a compelling opportunity for investors in UK shares. The UK is at a clear valuation discount to historic averages and measures of intrinsic value but there is the potential for government policy intervention (focused on pension fund domestic equity allocations in particular) to help turn the tide of investor sentiment and capital flows, which would be of particular benefit to smaller company valuations.
While the re-rating potential of UK equities, small caps in particular, is significant, the timing and magnitude of the catalysts remains uncertain. In the meantime, we are optimistic about the portfolio’s ability to continue to deliver attractive compounding longer term investment returns supported by an attractive combination of earnings growth and increasingly shareholder yield (both dividend and share buybacks).
In terms of portfolio performance, Craneware (+23%), the developer and seller of billing software for the US healthcare services sector, announced that the positive momentum experienced in FY24 has carried into the current financial year, bolstered by previous investments that continue to drive revenue and underlying earnings growth. The company stated it remains on track with current market expectations for the fiscal year ending 30 June 2025. It highlighted its robust balance sheet, high levels of recurring revenue, and strong cash flow.
AB Dynamics (+17%), the designer, manufacturer and supplier of advanced testing, simulation and measurement products to the global transport market, performed strongly over the month primarily due to the company's strong financial performance and positive market outlook. AB Dynamics reported a 10% rise in revenue to £111 million for the fiscal year ending 31st August, up from £101 million the previous year. The adjusted operating profit also saw a significant boost, increasing by 22% to £20.3 million. The company attributed this growth to sustained high demand across key markets and improvements in operating margins.
Defence technology specialist Cohort (+16%) announced the acquisition of EM Solutions, an Australian naval communications firm, for £75 million. This move is expected to enhance Cohort's capabilities in satellite communications for global naval and defence applications. The company raised £41 million through a share placement to fund this acquisition, which is anticipated to be accretive to adjusted earnings per share from the fiscal year 2025/26.
Microlise (-20%), the provider of transport management technology, reported a cyber security breach that affected its operations. While the company announced that services were expected to return to normal shortly after the incident, it confirmed that corporate data had been exfiltrated, prompting notifications to international authorities.
Brickability (-13%), the distributor of construction materials, fell after reporting a 7.4% like-for-like reduction in revenue during the six months ended 30 September 202, reflecting a tough economic backdrop for the UK construction industry.
Shares in Judges Scientific (-13%), the scientific instrument manufacturer, suffered primarily due to the company's announcement that delays and deferrals in orders have led to a downward revision of its adjusted basic earnings per share (EPS) forecast for the year. The company attributed the revised forecast to ongoing challenges, including deferred projects and difficult market conditions, which affected both the first and second halves of the year.
The position in Eckoh was exited during the period in advance of the expected completion of the takeover by Bridgepoint.
Positive contributors included:
Craneware (+23%), AB Dynamics (+17%), Cohort (+16%), On The Beach (+16%), Focusrite (+13%)
Negative contributors included:
Microlise (-20%), LSL Property Services (-15%), Brickability (-13%), Judges Scientific (-13%), Foresight Group (-10%)
Discrete years' performance** (%) to previous quarter-end:
|
|
Sep-24 |
Sep-23 |
Sep-22 |
Sep-21 |
Jun-20 |
|
Liontrust UK Smaller Companies I Inc |
8.3% |
-1.6% |
-28.9% |
46.9% |
12.8% |
|
FTSE Small Cap ex ITs |
22.4% |
12.7% |
-24.4% |
72.4% |
-12.7% |
|
IA UK Smaller Companies |
16.1% |
2.2% |
-31.9% |
51.1% |
-0.4% |
|
Quartile |
4 |
4 |
2 |
3 |
1 |
*Source: Financial Express, as at 30.11.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.09.24, total return (net of fees and income reinvested), bid-to-bid, primary 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.
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.
