For individual investors in the UK

Lowland Investment Company Fund Manager Commentary – July 2022

Laura Foll and James Henderson, Portfolio Managers of Lowland Investment Company, deliver an update on the Trust highlighting factors currently impacting the UK market, the key drivers of performance, and outline recent portfolio activity over the month.

Laura Foll, CFA

Laura Foll, CFA

Portfolio Manager

James Henderson

James Henderson

Director of UK Investment Trusts | Portfolio Manager

23 Aug 2022
4 minute read

Macro backdrop

After a sharp decline during June, UK equity markets rebounded in July with the FTSE All-Share Index returning 4.4%.¹ Within this, there was a reversal of the trend seen so far this year as small and medium-sized companies outperformed larger companies -the FTSE 250 Index rebounded strongly as it was up 8.3% and the microcap AIM Index rose 5.3%, while the FTSE 100 Index rose 3.7% (all figures are total return).¹ While it is always difficult to pinpoint precisely what causes a market to turn, especially during the quieter summer months, this change in market direction came at a time when second quarter earnings releases from companies are proving broadly resilient, and when there was a growing expectation that we may be reaching the peak pace of interest rate rises -for example the US Federal Reserve (Fed), having raised interest rates 0.75% at the last two meetings, may now slow the pace to 0.5%.²

Fund performance and activity

In a rising market the Trust modestly underperformed, with its net asset value rising 4.1% relative to a 4.4% rise in its FTSE All-Share Index benchmark and a 5.2% rise in its AIC UK Equity Income peer group.¹

The largest individual detractor from performance was motor insurer Direct Line, which lowered earnings expectations for the year as claims costs were higher than expected and higher prices will likely take time to recover these additional costs.³ While this i s disappointing, we continue to think that Direct Line is a disciplined underwriter and it is now trading at a low valuation versus i ts history. Therefore, we added to the holding after the share price fall. Among the best performers during the month were industrial holdings Morgan Advanced Materials and brick manufacturer Ibstock. Both reported encouraging trading updates that have meant modest earnings upgrades.⁴

During the month, we added a new position in reinsurer Conduit. The shares have performed poorly and were trading at a lower valuation than historically because there have been some losses due to the war in Ukraine -for example, commercial buildings insurance where buildings have been destroyed. While this will likely impact earnings in the short-term, we retain our confidence in Conduit and in the meantime the shares are paying an above market average yield. We also added to existing positions in companies, including textile rental company Johnson Service Group, flooring distributor Headlam and Scottish housebuilder Springfield Properties. These additions were funded by a sale of the position in Euromoney Institutional Investor (which agreed to a takeover offer from private equity) and reductions in the positions in Centrica and BAE Systems following some good performance.


The widespread assumption in the market is that the valuation compression we saw in the first half of the year is the prelude before widespread and material earnings declines as global economic growth slows. However, what we are hearing from companies so far, with the exception of discretionary 'big ticket' item spend, is that demand is remaining largely resilient. In our view, the likelihood looking ahead to the second half of the year is that there will likely be areas that remain resilient (for example there are pockets of consumers that built up substantial excess savings during the pandemic and therefore have the capability to continue spending), and there will also be areas of weakness that will likely to see earnings declines. We are adding to holdings where we think end demand could prove more resilient than expected, or where valuations have fallen such that we think considerable earnings declines are already 'priced in'. In making these additions, we are seeking companies that are well managed by experienced teams and are market leaders (or one of the market leaders) in the product or service that they are providing.

LWI July 2022

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.

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 trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • Some of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • 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 trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.