Liontrust UK Micro Cap Fund

Key highlights

• Large gains at Eagle Eye Solutions, James Cropper and Microlise underpin solid quarterly portfolio performance, albeit small and micro cap stocks lagged large cap gains in Q3.
• Essensys and Churchill China facing tougher conditions in their markets.

Performance

The Liontrust UK Micro Cap Fund returned 1.7%* in Q3. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned -0.1% and 2.0% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -0.3%.

Commentary

In Q3, global equity markets continued to recover from April’s tariff-triggered sell-off. While US trade policy remained a feature for market commentators, the agreement of deals with Japan and the EU helped boost sentiment and investors were increasingly willing to set the trade tariff saga aside and focus on corporate updates.

Equity market gains were aided by a US rate cut, which was increasingly priced into markets in the wake of data showing weaker than expected jobs creation. The Fed opted to cut by a quarter percentage point, its fourth cut since rates peaked in 2023, but the first in nine months. The Bank of England reduced interest rates by 25 basis points to 4%, its fifth cut in 18 months.

However, in a revival of a familiar trend from recent years, Q3’s strength was concentrated in large caps. While the FTSE 100 gained 7.5%, the AIM All-Share lagged with 2.0% and the FTSE Small Cap ex-investment companies index returned -0.2%.

Within the portfolio, Eagle Eye Solutions (+43%) was a top riser. The software-as-a-service (SaaS) provider of loyalty and promotional solutions to the retail and travel sectors released full-year results reporting on a solid performance in the period to 30 June 2025, confirming the outlook for the new financial year, and including upbeat comments on the initial stages of the enterprise software partnership. Eagle Eye’s AIR platform for omnichannel personalisation of loyalty and subscription programmes will be embedded in the products of “one of the largest software providers in the world”. The initial product development milestones have been met and first customer contracts are expected towards the end of 2025. 

James Cropper’s (+35%) September’s AGM statement revealed that performance in its two divisions had been slightly ahead of expectations during the 18 weeks to 2 August, with more disciplined cash management helping it reduce net debt to £10.3 million from £12.9 million at 29 March. This provided evidence to the market that the new management team and strategy were making progress. 

ActiveOps (+30%) released a very upbeat set of results for the year to 31 March. The provider of data analytics tools to banking, healthcare and insurance sectors grew revenue by 14% to £30.5 million, with pre-tax profit rising 30% to £1.3 million. It secured nine new customers over the year – compared with three in the previous twelve months – and achieved a net revenue retention on its existing business of 108% in constant currency terms. 

Microlise Group (+34%) released a half-year trading update in which it described “buoyant end markets, a robust pipeline and a growing order intake” and maintained its financial guidance for 2025. The provider of transport management software to fleet operators added 216 customers in the first half of the year, with churn on its existing base of only 0.5% - helping it grow revenue 13% to £44.1 million.

While there were these positive stock-specific developments in the portfolio the market backdrop remained challenging for some companies.

Essensys Group (-49%) lost ground as a trading update showed revenue and earnings on track to be slightly below market expectations. The supplier of software to landlords and workspace providers had previously communicated a revenue fall in the year to 31 July due to a higher level of customer churn; the latest statement announced revenue of the £19.2 million, down from £24.1 million in the previous year and below analyst forecasts of £20.0 million. Essensys believes it has made account management improvements which should deliver lower churn and a reduced cost base, while it views the long-term growth drivers for flexible, hybrid working as intact. 

Hospitality market weakness has been a headwind for Churchill China (-40%). While it saw steady performance through to Easter, activity in May and June was well below expectations, with restaurants – particularly independents – experiencing cost pressures. Sales are lower than last year, while there has also been some downtrading to cheaper products in its range. While UK and USA sales have been robust, Churchill has experienced soft demand in its European markets, particularly Germany. 

Churchill reiterated that market share has been maintained and that it views its medium-term market opportunity as unaffected but warned that this year’s revenue and profits will be significantly lower than last year.  

Positive contributors included:

Eagle Eye Solutions (+53%), James Cropper (+48%), Microlise (+34%), ActiveOps (+27%) and Gear4music (+23%).

Negative contributors included:

essensys (-49%), Churchill China (-40%), Vianet (-27%), Animalcare (-20%) and Solid State (-19%).  

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

*Source: Financial Express, as at 30.09.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. 

**Source: Financial Express, as at 30.09.25, total return (net of fees and income reinvested), bid-to-bid, institutional class.