Ms Stevens, who co-manages the fund alongside Anthony Cross, Julian Fosh and Matthew Tonge, said the team’s strategy had “held up relatively well” given the sharp turn in fortunes for smaller companies, with small- and mid-cap indices set to underperform large-cap peers in 2016 by a significant margin.
But while the FTSE Small Cap index has underperformed the FTSE 100 since June 23, the Liontrust vehicle has outshone both – returning 7 per cent.
Ms Stevens said: “We held up relatively well in the aftermath of the Brexit vote. We have a lot of businesses that are either selling with high proportions of recurring contracted turnover, so protected to a degree from customer buying decisions seeing some delays.”
As part of this limited cyclical exposure, the fund has spend 2016 realigning its holdings. It has sold out of two UK logistics positions this year due to a “race to the bottom” for parcel delivery charges.
Although the boom in online shopping has translated into more parcels being delivered in the UK, a number of companies have struggled to meet demand and gone out of business. Ms Stevens said while both companies have “powerful distribution networks”, difficult for a competitor to replicate, neither managed to successfully harness this.
A position in UK courier company DX Group was sold in January, while the fund exited private postal service UK Mail in April, with both “unable to translate economic advantage into superior returns”.
Ms Stevens added: “What we perceived to be the case in that industry was the volume of parcels from online shopping going up almost exponentially.
“[However] actually [the industry is] struggling to cope with that demand and pricing should really be increasing if anything, whereas what we’ve been seeing is almost a race to the bottom.”
Elsewhere, the team initiated a 1 per cent position in Trifast, an industrial materials manufacturer. This was due to the company’s “strength in intellectual property” with numerous patents and a distribution network difficult to replicate.
Strength in distribution and national reach also pushed the fund to buy the UK’s first publicly listed law firm Gateley, now a 1.5 per cent position. Ms Stevens said she also valued the company’s customer relationships, and the fact that it kept a more traditional law firm structure with partners owning shares.
“It’s got a strong customer relationship and can work with those customers for years, becoming a trusted provider to those customers. It’s got a good national brand.”
But the fund, though attempting to maintain significant exposure in technology and industrial firms, has had to sell out of three positions due to a contravening of fund rules.
The team sold positions in healthcare software company Emis Group, cyber security company NCC Group, and medical group LiDCO due to the “management ownership rule”, which stipulates a company’s directors must own at least 3 per cent of a holding.
Ms Stevens said the rule had meant the team “frequently” came up against a need to divest a holding.
“If a company’s management ownership dips below 3 per cent it effectively starts the clock ticking for us thinking about exiting the position,” she added.
