This fund applies the team's proven ‘economic advantage’ investment process to micro-caps - a part of the market that tends to be under-researched. Investing in Britain's smallest businesses, the fund follows in the footsteps of the successful Elite Rated Liontrust UK Smaller Companies and Liontrust Special Situations funds.
Our opinion
The Liontrust UK Micro Cap fund employs a proven investment process. It's rare for a smaller companies fund to have such a well-defined and disciplined framework. The alignment with management, focus on capital-light businesses which can scale quickly, and emphasis on company meetings are all very sensible. The team's track record with other funds that use this process is outstanding.
Company description
Liontrust Asset Management was founded in London in 1995 and prides itself on the freedom it allows its managers, who invest in their own portfolios. Listed on the Stock Exchange since 1999, the company's culture is at the forefront of its values. The firm was awarded the Elite Provider for Equities Rating in 2015, 2016, 2019 and 2021.
Fund manager
This fund is run by a team of five. Anthony Cross designed the process and has been running the Liontrust UK Smaller Companies fund since 1998. Julian Fosh is very experienced and has been working with Anthony since 2008. The team has been strengthened by the hires of Victoria Stevens, who joined in 2015 from small cap broker FinnCap, and Matthew Tonge. He worked at Liontrust as a trader for many years and joined the economic advantage team in 2015. Finally, Alex Wedge was added to the team in 2020 as a further co-manager.
Call us old fashioned, but we focus only on companies which already generate a profit. We don’t mind ‘jam tomorrow’, as long as we’ve got bread and butter today.
Victoria StevensFund manager
Investment process
Liontrust UK Micro Cap only invests in profitable companies. Like all other funds run by the economic advantage team, a company must have at least one intangible asset. These include a strong distribution network, high recurring revenues or a strong brand. Ideally, a company will have more than one of these characteristics. The team also looks for director ownership of at least 3% of the company. There are around 300 companies below £150 million which satisfy these criteria. The team then undertakes detailed fundamental research, preferring to avoid simplistic screens which they feel can be misleading. This is a long term, low turnover strategy.
ESG
ESG - Limited
The ‘Economic Advantage’ process employed by this fund looks for those businesses with distinctive, hard-to-replicate intangible assets. This does include the analysis of ESG factors, but more to identify the risks and use to help with position sizing, rather than as a screen. As such, the portfolio can invest in firms from all sectors and industries, though those with poor ESG credentials will be looked on less favourably than others, all other things being equal.
Risk
The fund invests in the smallest and most illiquid parts of the UK stock market, which can be volatile particularly during times of market stress. Nevertheless, the portfolio is well-diversified with around 60 holdings, which can help to lower potential volatility.
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