Fund Manager August 2021 Commentary – Lowland Investment Company
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The majority of companies held in the portfolio have now reported first half earnings. These results have (broadly) been encouraging, with both sales and earnings recovering ahead of expectations. A recent example of this has been Marks & Spencer, where clothing and home sales have recovered faster than expected and therefore profit guidance for this year has been revised higher. Looking ahead, we continue to think that earnings expectations for the remainder of the year and into 2022 look conservative given, for example, the build-up of consumer savings during the course of the pandemic and the degree of cost savings that many companies have achieved. In our view, the prospect of further earnings upgrades, combined with a lower valuation relative to other developed equity markets is a supportive backdrop for UK equities.
We have been encouraged by the dividend recovery seen this calendar year, with particularly strong dividend growth from the banking, mining and energy sectors. There continues to be a portion of the portfolio (such as companies exposed to hospitality and travel) that has not yet returned to paying a dividend. As the domestic and global economy continues to recover, we would expect these remaining companies to return to paying dividends in future years.
August was a relatively quiet month for transactions within the portfolio, but we added to a number of existing holdings including Tesco, life insurer Chesnara and Anglo American. A new small position was established in law firm DWF.
Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation e.g., price to earnings (P/E) ratio and return on equity (ROE).
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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.