Liontrust UK Micro Cap Fund

• December’s decline completes a lacklustre second half of 2024 for the UK market. 
• On the Beach rallies 50% on upbeat results which include the launch of a share buyback programme.
• CMO the biggest detractor after warning on profits due to weak customer confidence in Q4.

The Liontrust UK Micro Cap Fund returned 0.7%* in December. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 0.6% and -1.7% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -0.6%.

December’s fall completed a lacklustre second half of 2024 for the FTSE All-Share Index. After a strong start to the year which saw an 8.7% total return in the first five months, the UK market largely moved sideways over the remainder of the year, with the 0.7% total return since the end of May comprising a 1.1% price fall offset by dividend income.

July’s UK election result initially looked as if it would clear the path for stronger gains, with political uncertainty removed and the prospect of positive policy catalysts imminent. However, this confidence gave way to some uncertainty around possible changes to the fiscal landscape ahead of the Autumn Statement, with investor sentiment also proving vulnerable to shifts in the global macroeconomic outlook.

US and UK inflation data released during December ensured investors finished 2024 discussing the year’s dominant theme: the paring back of expectations for interest rate cuts. Data for November showed consumer prices still rising at a rate of 2.7% and 2.6% respectively, in line with expectations but stubbornly higher than the target rates.

Persistence in inflation led to around 100 basis points (bps) fewer interest rate cuts in 2024 than were expected at the start of the year. When combined with the expected inflationary impacts of the Trump presidency in the US and Labour budget commitments in the UK, only a couple of 25bps cuts are now forecast for 2025.

While the tax-status policy uncertainty which weighed on AIM shares for much of 2024 was put to bed with the Autumn Budget’s announcement of a 50% inheritance tax relief, this end of the market is yet to stage a concerted rally to regain relative weakness against the wider market. The FTSE AIM All-Share lost 1.7% in December and returned -4.0% over 2024.

On the Beach (+52%) shares rallied following an upbeat full-year results release. In the year to 30 September, the online package holiday group saw revenue rise 14% to £128 million after total transaction value (TTV) increased 15% to £1.2 billion. These trends have continued into the new financial year, with 14% growth in TTV allowing On the Beach to approach its key booking period with what it describes as significant momentum. In a sign of its management team’s confidence, a £25 million share buyback was announced – the decision follows the reinstatement of a dividend policy last year, having been suspended during the Covid years.

CMO Group (-40%) slid through December after a late-November profit warning. The online retailer of general building materials reported a drop in customer confidence in final quarter of the year leading it to cut its 2024 revenue guidance from over £65 million to a £62 million – £63 million range and reduce its EBITDA forecast from over £1 million to between £0.5 million and £0.7 million.

An AGM statement from Croma Security Solutions (+14%) described good levels of organic growth across its core markets of education, utilities, health and leisure. Croma has historically been acquisitive in expanding its portfolio of businesses across security, fire and locksmith services. Currently, it has a strong pipeline of opportunities to acquire profitable locksmith stores, which it would then convert to modern security centres to extend the Croma network.

Shares in BigBlu Broadband (-16%) had jumped in November on the announcement of a potential sale of its Australian SkyMesh business, but lost around half these gains in December as sale terms were revealed. BigBlu will receive up to £25 million for SkyMesh, comprising a £15 million initial cash payment, shares valued at nearly £7 million in an acquisition vehicle set up by Salter Brothers Asset Management, with the remainder contingent on various goals.

Positive contributors included:

On The Beach Group (+52%), IG Design Group (+30%), CML Microsystems (+20%), Zoo Digital Group (+15%) and Croma Security Solutions (+14%).

Negative contributors included:

CMO Group (-40%), Inspiration Healthcare (-18%), BigBlu Broadband (-16%), Bioventix (-14%) and Quartix (-13%).

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

*Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested), bid-to-bid, institutional class.

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.