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Fund Manager June 2021 Commentary – Lowland Investment Company

Laura Foll, CFA

Laura Foll, CFA

Portfolio Manager


James Henderson

James Henderson

Portfolio Manager


26 Jul 2021
3 minute read

There was a rotation in the UK equity market during June, with cyclical sectors that had performed well calendar year-to-date (such as financials) underperforming, while defensive sectors such as healthcare outperformed. There may be a period of consolidation in the equity market following a cyclicals-led recovery after the positive vaccine news in early November.

There were no new positions established during the month, however we added to a number of existing holdings on valuation grounds including Direct Line, Tesco, Studio Retail (an online value retailer) and Ricardo (an environmental consultant). The only position sold in entirety was St Modwen Properties following an increased takeover offer from Blackstone. We also reduced the position in cycling and motor parts retailer Halfords following strong performance.

We continue to be encouraged by what we are hearing from companies of current trading conditions. In many cases, companies are reporting sales that have already recovered to (or in some cases are above) 2019 levels. This strength, aside from in the most affected areas such as civil aerospace, is broad across a number of end markets including advertising, construction and areas of consumer spending (such as car and home sales). This is a faster recovery than we, and many companies, were anticipating. This recovery comes at a time when many companies had substantially reduced costs during the peak of the pandemic last year, therefore there could be a faster than forecasted earnings recovery if current trading levels are sustained. However, this will depend on several factors including the final stages of ‘opening up’ the domestic economy, the progression of unemployment levels as the furlough scheme continues to wind down, and consumer willingness to spend their excess savings built up over the course of the pandemic.

Cyclical sector/industry Expand

A cyclical industry is a type of industry that is sensitive to the business cycle, such that revenues generally are higher in periods of economic prosperity and expansion and are lower in periods of economic downturn and contraction.

Defensive company Expand

A defensive company is a corporation whose sales and earnings remain relatively stable during both economic upturns and downturns. Defensive companies tend to make products or services that are essential to consumers.

Valuation metrics Expand

Metrics used to gauge a company’s performance, financial health and expectations for future earnings eg, price to earnings (P/E) ratio and return on equity (ROE).

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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. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

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.

 

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Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • 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.