209. Inflation protection, M&A activity and using disruption to invest in the future

Liontrust UK Micro Cap co-manager Victoria Stevens explains why holding companies which are not capital intensive and have strong pricing power has positioned the fund to manage the challenges of rising inflation. Victoria also talks us through the importance of manager ownership in a company and how it can allow a firm to grow through periods of uncertainty. She also highlights the positives and negatives of M&A activity on the fund and tells us why a 175-year old paper mill in Burneside has become an attractive investment in the defence, high end automotive and clean energy space.
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Liontrust UK Micro Cap fund looks to tap into early stage companies with the potential for significant growth. To do this, the five-strong team only invests in profitable companies, which also have at least one intangible asset – these include a strong distribution network, high recurring revenues, or a strong brand. Companies must also have an element of owner management to align their interests with shareholders. Despite a challenging backdrop, performance has been exceptional for this fund since it launched back in 2016.

What’s covered in this episode:

  • The importance of the investment process and how it has helped the fund thrive in uncertain times
  • Why holding companies which are not capital intensive and have strong pricing power should position the fund well in a world of rising inflation
  • Risk aversion and strong balance sheets – the benefits of only investing in companies where the management also own part of the business
  • Using disruption to invest in the future – how the management behind corporate training business Mind Gym took advantage of Covid by using its strong cash reserves to quickly grow its digital arm
  • The bittersweet nature of M&A activity on the fund
  • Being excited about market valuations given their long-term investment mindset
  • Topping up on holdings when the market has overreacted to news
  • How companies like YouGov can graduate from UK Micro Cap to the UK Smaller Companies fund
  • Investing in James Cropper – a company that’s expanded from a paper mill to creating technical fibre products that are used on steal fighter jets
This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.

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