Liontrust Global Smaller Companies Fund

The Economic Advantage team took over management of the Liontrust Global Smaller Companies Fund on 14 January 2025.

The Fund will be managed by Alex Wedge and Bobby Powar, who will apply the same Economic Advantage process that has been used to manage the team’s range of UK equity funds, including the UK Smaller Companies Fund since 8 January 1998.

• The Fund has been transitioned to the target portfolio over the course of the month. The outcome is a diversified portfolio of 55 listed companies across both developed and emerging markets.
• Top performers included OSI Systems, which benefitted from increased US border security spending; Cadre Holdings gained from a strategic acquisition expanding its business; Trustpilot saw strong US growth and new customer wins.
• Key detractors included Progress Software, which missed earnings expectations, though we see underlying strength and added to our position; Aris Water Solutions declined amid concerns over AI-driven efficiency in energy demand.
  

The Liontrust Global Smaller Companies Fund returned 6.8% in January, compared with the 3.4% return of the MSCI ACWI Small Cap Index and an average return of 5.0% in the IA Global sector, its comparator benchmarks.

• The Fund has been transitioned to the target portfolio over the course of the month. The outcome is a diversified portfolio of 55 listed companies across both developed and emerging markets. The team follows a robust investment philosophy, focusing on companies with intangible assets and a consistently strong cash flow return on capital (CFROC). The investment process identifies profitable, cash-generative businesses with enduring barriers to competition, high returns on capital, and typically low financial gearing. These are not speculative or loss-making investments, nor are they pre-revenue.

Portfolio characteristics

Our process results in a portfolio of high-quality compounders with strong balance sheets. Below data sourced from Quest/Bloomberg as at 31.12.25:

• CFROC 14.6% vs market average 5.5%
• Gross Margin 40% vs market average 26.5%
• Operating margin 14.8% vs market average 7.2%
• Gearing (debt/equity) 65% vs market average 108%
• Free cash flow yield 3.8% vs market average 4.1%

Due to its investment process, the Fund has a natural tilt toward quality growth, with overweights in sectors like industrials, technology, and healthcare. It is underweight in financials, real estate and materials. The weighted average market cap of the portfolio is £4 billion (as of 31.12.25).

Stock example

To demonstrate the type of investments one might expect us to make, we include a stock example – Asahi Intecc:

Asahi Intecc is a Japanese company, founded in 1976 which originally made ultra-fine stainless steel wire rope for industrial uses. In 1994, it pivoted this skillset to medical devices, particularly guidewires and catheters. Asahi Intecc are now the leading global provider of guidewires, with more than 50% market share. Guidewires are used to treat coronary artery disease by widening arteries or veins to allow the placing of a stent, via a procedure called percutaneous transluminal coronary angioplasty (or PTCA), which is minimally invasive and therefore helps to avoid major surgical intervention. Guidewires are mission critical to these procedures though only cost between £50-100 each.

Asahi Intecc have spent 30 years honing its expertise in this niche segment, designing and manufacturing its products from materials through to testing/prototyping/production all in-house. As a result, its guidewires are able to achieve superior performance, in particular ‘torqueability’ which is essentially the ability for the physician to rotate one end of the wire and the other end to remain in place. This trait is incredibly important to catheter balloon and stent placement, and Asahi Intecc’s widespread adoption by physicians across the world is testament to their leading IP.

As expected, we like the strong IP assets that have delivered a product performance advantage, a large global distribution network and supply chain that is difficult to replicate (these are one-time-use devices so require constant replenishment purchases), and growing use cases outside cardiovascular such as peripheral arteries and neurovascular. The founding family, as well as the executive team, remain meaningful shareholders.

Performance commentary

Now turning to performance, over the month, the portfolio outperformed the MSCI ACWI Small Cap Index by 3.4%. Top contributors included:

• OSI Systems (+22%), which reported strong quarterly results driven by its security systems business, which is benefitting from increased security spend at the US border.
• Cadre Holdings (+15%), largely a US police force accessories business with high market shares in holsters and body armour, announced an acquisition of a nuclear safety equipment business which the market took positively as the business continues to diversify into attractive adjacent categories, further highlighting the management team’s effective capital allocation framework.
• Trustpilot (+24%) performed well following strong results driven by healthy growth in its US business as it continues to monetise its vast customer experience database asset through product enhancements and new customer wins.

  On the negative side, top detractors included:

• Progress Software (-10%), sells mission-critical IT infrastructure software which underpin, for example, major bank mortgage operations or the transfer of data from relational databases to software applications, missed earnings expectations. We felt the market overreacted to the near term, particularly as the underlying performance of the company remains robust, so we added to the position.
• Aris Water Solutions (-9%) fell as the impact of DeepSeek’s highly cost efficient model reverberated around markets. Aris Water Solutions operates the largest water infrastructure network in the Permian Basin, overseeing the transportation, disposal or recycling of water for major drilling customers. A more efficient AI model perhaps indicates that the expected energy requirements to power data centres in the USA could be lower than currently forecast. However, it seems reasonable to us that Jevon’s Paradox may play out as in the very long term if highly productive AI technology becomes more affordable, adoption will likely accelerate.

Nonetheless, we do not try to forecast national energy requirements, oil prices or production. This is not why we own Aris Water – rather we like its entrenched water distribution network, contracted revenues, and low incremental capex needs hereon that lead to the potential for considerable operating leverage as they grow with their clients. 

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

* Source: FE Analytics, as at 31.12.24, total return, net of fees and income reinvested. The current fund managers’ inception date is 14.01.25

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

• Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund.
• This Fund may have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
• 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.

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.

DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It 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.

This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, 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. 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.