Liontrust UK Smaller Companies Fund

The Liontrust UK Smaller Companies Fund returned -8.9%* in Q1. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -6.6% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -7.4%.

Mounting geopolitical instability and uncertainty over US trade tariffs defined the market environment in Q1.

President Trump’s approach to the Ukrainian conflict included calling for a swift end to the war, criticising President Zelensky and indicating an unwillingness to continue financial and military assistance. As a result, investors factored in higher expectations of military spending in Europe from governments attempting to fill the void and deter Russian aggression – leading to a sharp rally in defence sector stocks.

At the same time, investors struggled to price in the impact of Trump’s trade tariff threats. While it initially seemed that the threatened levies could be negotiating tools to win concessions from trade partners, Trump showed little sign of backtracking ahead of his promise of a further batch of reciprocal tariffs in early April – prompting significant investor nervousness.

In this environment, large-caps and defensive areas held up best. Beneath the FTSE All-Share’s solid quarterly gain of 4.5% is substantial variation in returns to different size segments. While the FTSE 100 was up 6.1%, both the FTSE 250 and FTSE AIM All-Share lost around 5%.

As the managers have stated on a number of occasions, this underperformance of mid and small caps – driven itself by risk aversion stemming from macro events – has opened an opportunity to invest in these companies at generational valuation lows.

The portfolio exhibits a strong bias towards the quality style factor as a result of the investment process, which targets companies with enduring competitive advantage stemming from intangible asset strengths, resulting in high cash flow returns on capital. However, value style characteristics outperformed quality and growth in the quarter

While recent market trends have been tough for relative portfolio performance, there is mounting potential for outperformance from some of the more unloved areas of the market as and when sentiment recovers and valuations revert towards long-term averages.  Despite the harsh and indiscriminate de-rating in valuations seen across much of the market it was pleasing to see the share prices of a number of holdings respond to good newsflow with positive share price movements.

The largest quarterly riser was everplay group (+26%), formerly Team17. It rallied following a full-year trading update indicating that both revenue and adjusted EBITDA are expected to slightly exceed market expectations. The video game specialist, which also announced its rebrand, noted that strong performance in the second half of the year was driven by robust sales from new releases and a solid back catalogue, with momentum continuing into January after a strong Christmas trading period.

Quartix Technologies (+26%) recorded a similar gain. The provider of vehicle tracking systems and associated analytics and services grew its fleet subscription base 13% to 300,168 in 2024, with annualised recurring revenue rising 12% to over £32 million. The company commented that 2025 has started on a strong note, allowing it to modestly upgrade its guidance. Customer acquisition rates have improved– setting it on track to grow both recurring revenues and adjusted profit before tax by about 10% this year.

Fevertree Drinks' (+20%) shares surged after Molson Coors, one of the world's largest beverage companies, acquired an 8.5% stake in an $88 million deal. The agreement grants Molson Coors exclusive rights to market Fevertree’s cocktail mixers and tonic water in the US.

It also released 2024 results which showed revenue growth acceleration to 7% in the second half of the year, taking the 12-month rate to 4% – healthy growth against what the company describes as a subdued consumer environment. To hear more about Fevertree’s rapid growth and future prospects, listen to our conversation with CEO Tim Warrillow – part of our Stock Exchanges podcast series.

With the US accounting for over a third of its revenue, Fevertree expects low-single-digit growth in 2025 as the partnership rolls out, followed by double-digit growth in 2026 and sustained revenue increases in the medium term.

Amid an environment of significant macroeconomic uncertainty, and with YouGov’s (-34%) 2024 travails fresh in the memory, investors in the research data and analytics group marked the shares down on some cautious outlook comments within half-year results. While YouGov states that it expects to meet market expectations for the financial year, it also notes that trading conditions remain challenging. Last year, a June profit wanting was triggered by an unexpected slowdown in demand in its Data Products decision.

Mortgage Advice Bureau (+23%) reported "positive momentum" following a strong financial year marked by increased revenues and profits. In a trading update for the year ending 31 December 2024, the company announced an 11% rise in revenues, reaching approximately £266 million, surpassing the projected 4% growth from £240 million.

The largest detractor during the period was GlobalData (-21.5%), which cost the Fund 72 basis points (bps). The share price move was in spite of the company reporting full year results which were in line with expectations, posting a 32% increase in pre-tax profit.  Last month GlobalData announced a £50 million share buyback programme and its intention to move from the junior AIM market to the London Stock Exchange’s Main Market in order to access a larger pool of potential investors. In the short term, an overhang from inheritance tax (IHT) investors may weigh on the shares due to the fact that tax relief status is lost when the shares move to the main market. However, following the move (expected to occur in the second quarter of the year), greater liquidity and investor interest is likely to catalyse a reversal of this dynamic, particularly as the company’s size is likely to earn it a place in the FTSE250 index at the next rebalance.  

Big Technologies (-47%) was the second largest detractor from performance in the portfolio faller on news, as reported by the company on 31 March 2025, that its CEO and founder, Sara Murray, has been dismissed by the company over concerns around her conduct during the legal case brought by a small number of former shareholders in its Buddi subsidiary. The company announced that it has concluded that Murray, who personally holds around 27% of Big Technologies’ share capital, failed to disclose interests in four entities with substantial shareholdings in the company at the time of the company’s IPO and subsequently. Big Technologies has issued legal proceedings of its own against Murray. The company commented that current trading is in line with market expectations, and it has a robust balance sheet position of £101.1m of net cash as at the end of February.

Intellectual property support services provider RWS Holdings (-31%) gave back all of last quarter’s gains. Following a tough 2024, RWS has been confident in its ability to integrate AI into its portfolio of services, and full-year results show these products contributing to a return to growth in the second half of the year. Organic constant currency (OCC) revenue growth in the second six months was 2%, resulting in a flat performance for the year as a whole. Within this, around 25% of revenue came from AI-related services such as TrainAI and Language Weaver, a category which grew at 7% in OCC terms over the year.

Learning Technologies Group edged closer to completion of its acquisition by US private equity vehicle General Atlantic, a 100p-a-share transaction over which we have expressed our dissatisfaction on several occasions. The Fund sold out of the position ahead of the deal’s imminent conclusion.

The position in Bango was also exited in full during the period.

Positive contributors included:

Everplay Group (+26%), Quartix Technologies (+26%), Mortgage Advice Bureau (+23%), Fevertree Drinks (+20%) and Cohort (+10%)

Negative contributors included:

GlobalData (-22%0, Big Technologies (-47%), RWS Holdings (-31%), Tristel (-29%) and Midwich Group (-29%).

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

*Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, primary class.

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.

The Funds managed by the Economic Advantage team:

• May invest in smaller companies and may invest a small proportion (less than 10%) in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, a 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 a fund to defer or suspend redemptions of its shares. 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.
• May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
• May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
• Outside of normal conditions, 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.

The risks detailed above are reflective of the full range of Funds managed by the Economic Advantage team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

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

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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.

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