Lowland Investment Company Fund Manager Commentary – October 2022
Laura Foll and James Henderson, Portfolio Managers of Lowland Investment Company, deliver an update on the Company, highlighting factors currently impacting the UK market, the key drivers of performance, and recent portfolio activity.
3 minute read
Please Note
From January, Lowland Investment Company’s Commentary will be merged into the Factsheet. The new, and improved, merged Factsheet document will still be accessible via the ‘Quicklinks’ and ‘Documents’ sections on Lowland Investment Company’s webpage.
Investment Environment
UK equity markets recovered in October as the FTSE AllShare Index rose 3.1%. UK Government bonds recovered strongly following volatility in September caused by the UK Government’s tax-cutting plans, while sterling also rallied towards the end of the month. Sentiment towards the UK improved after the previously announced tax cuts were reversed and there were hopes that the new Prime Minister could offer the UK more stability. This had the biggest positive impact on the share prices of large and medium sized companies. The FTSE 100 Index of large companies rose 3.0% while the FTSE 250 Index rose 4.5% (all figures given are total return, in sterling terms).
Portfolio review
The Company underperformed the benchmark, returning 2.9% while the FTSE All-Share Index benchmark rose 3.1% during October. Over the same time period, its AIC UK Equity Income peer group rose 2.6%. We have always had a multi-cap approach to income investing as this broadens the potential investment universe beyond a relatively select number of large UK company dividend payers. So far this year, our larger than benchmark position in smaller companies has been a headwind to relative performance. Small-sized companies again underperformed the benchmark, while large and medium sized companies outperformed. At the sector level, the energy companies were the largest detractors from returns due to UK natural gas price weakness and concerns of a potential windfall tax on the profits of energy firms.
In October, we initiated a new position in housebuilder Bellway and added to the position in Land Securities. The UK property market has suffered recently as rising interest rates make mortgages less affordable for potential buyers, therefore reducing demand. Bellway has fallen significantly so far this year and was trading at a large discount relative to the value of its assets at the end of October, which we felt could already reflect a substantial fall in the value of its properties. We also added to the position in Land Securities which was trading at a large discount to its net asset value. These positions were funded by trimming the position in defence company BAE systems following a period of strong performance.
Manager Outlook
October saw an improvement in sentiment towards the UK following very turbulent period. The market reacted positively to the appointment of the new Prime Minister, buoying hopes of a period of less political instability in the UK. We have seen a recovery in the share price of our more domestically exposed companies. We are adding to companies which we believe are significantly undervalued and where we see potentially good opportunities for long term growth.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
Marketing Communication.
Important information
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.
Specific risks
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