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
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