A balanced approach to investing in the UK market
The UK stock market comprises a wide range of businesses from established global giants to ambitious small and mid-sized companies. Investing across the spectrum offers the potential for both income and capital growth.
5 minute read
The last few years have been challenging for many UK companies, which have faced a global pandemic followed by an inflation shock. But despite these difficulties, many UK companies have proved resilient or even thrived, and have continued to offer solid income to investors. With the pandemic now fading into history and the economy adjusting to a new normal, there is also the prospect of capital growth.
The Lowland Investment Company has an unwavering focus on UK business with more than 95% of its portfolio invested in UK companies. The Trust aims to provide investors with a higher-than-average return with growth of both capital and income over the medium and long-term. However, the key to its strategy, is diversification, not only in terms of industry sectors, but also links to the UK and global economy, and crucially their size and growth potential.
Large cap for income
A diversified portfolio is what allows Lowland to chart a smoother path through the ups and downs of the economic cycle. In tough times, large companies – particularly in sectors such as finance energy and consumer products – are resilient and may even thrive in a high interest rate and high inflation environment. In periods of confidence, mid-sized and smaller groups – many of them innovators in their field – attract investment, expand, and increase in value.
Lowland draws its portfolio from across the UK listed market, from FTSE 100 blue chip giants to mid-cap and small-cap companies that have the potential to grow and become the big businesses of the future. This blend offers investors the potential for income and growth across the economic cycle.
UK-based global businesses provide a solid foundation for income and up to 50% of Lowland’s investments are in FTSE 100 companies. This includes household names such as Shell, BP, HSBC, and National Grid. While the UK economy has faced many challenges in recent years, these large companies have been the stabilizing factor on Lowland’s portfolio and have continued to provide a steady and reliable income.
This bedrock of dividend-paying companies has allowed Lowland to maintain a progressive dividend policy with dividends rising every quarter for the last 10 years. In 2022, investors in Lowland received an impressive yield of 5.8%.i
Mid and small cap for growth potential
As experienced investors know, achieving sustained capital growth is a longer-term game. The recent difficulties faced by the UK economy have held back growth prospects for many businesses, but as Covid fades into history and the economy adjusts to the new normal of higher inflation and interest rates, there are opportunities to be found in the mid- and small-cap sectors of the UK market.
In fact, the prospects for mid and smaller companies are better now than they have been for some time. UK equities look undervalued both on fundamental terms and compared to other developed markets. This is particularly true for UK mid-and small cap stocks which offer investors exposure to faster growing companies at an earlier stage of their lifecycle, and therefore the potential for a longer pathway of earnings growth ahead of them.
Lowland’s investment in mid- and smaller-cap companies is diverse and aimed at identifying the best prospects for capital growth. This includes companies such as Serica Energy and Ilika that are innovating within the energy sector and will contributed to the UK’s transition towards a cleaner and more sustainable economy.
Striking the balance
It has a been a difficult few years for UK plc, but despite this backdrop Lowland Investment Company has succeeded in delivering income to its investors. And with a portfolio that combines big dividend paying groups with fast growing mid-and small cap companies, it provides investors with complete exposure to the UK market. For investors looking for consistent and stable income and the potential to share in long-term growth of the UK businesses, Lowland Investment Company is worth a look.
iSource: Lowland Investment Company Annual Report 2022
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Diversification – A way of spreading risk by mixing different types of assets/asset classes in a portfolio. It is based on the assumption that the prices of the different assets will behave differently in a given scenario. Assets with low correlation should provide the most diversification.
Please read the following important information regarding funds related to this article.
- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
- Some of the investments in this portfolio are in smaller company shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
- This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
- Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.