It was a poor six month period to the end of March 2025 for Lowland. The net asset value fell 2.1% compared to a rise in the FTSE All Share benchmark of 4.1%. If we look at the reasons for that underperformance, larger companies listed in the FTSE 100 index in the UK significantly outperformed small and medium sized companies where Lowland is overweight. For example, if we look at the Numis Smaller Companies Plus AIM (Ex. Investment Trusts) Index, it fell over 7% in the period, demonstrating that outperformance of larger companies relative to smaller ones. The trust continued with its progressive dividend policy in the period, announcing the first interim dividend, which was up just under 2% year on year. The Lowland share price fared better than its net asset value, rising 2.9%. In the period compared to that 2.1% fall in the net asset value. That’s because the discount to NAV narrowed as the trust initiated a share buyback programme.

Lowland has always invested more than its peer group and more than its FTSE All Share benchmark in small and medium sized companies, and over this six month period, it was that small and medium sized company overweight that was the biggest detractor from the trust relative performance. If we think about why larger companies, so in this case the FTSE 100 Index, largest UK companies, why that outperformed. We’re seeing ongoing outflows from the UK equity market that’s continued into calendar year 2025 disappointingly. And if we think about overseas investors that now own the majority of the UK equity market, they favour the largest UK companies where there is an international peer group. So think for example of the pharmaceutical sector, the consumer staple sector, these large companies have global international peers and overseas investors are much more comfortable with that. They’re less likely to go down the market cap scale and invest in small and medium sized UK companies where they’ll be less familiar. This is particularly true in a context where the UK domestic economy is probably best described as flatlining. There’s a clear slowdown in UK economic growth in the second half of 2024. So again, it doesn’t give those international investors a specific reason to own UK domestic economic shares.

The largest purchase during the six month period was the trust’s own shares as the trust initiated a share buyback programme. This wasn’t a specific discount control mechanism. This was in order to enhance the NAV for our existing shareholders. Outside of the trust’s owned shares, new positions included the likes of Norcros, which is a UK bathroom materials supplier, and Domino’s Pizza, the UK listed version of Domino’s Pizza. We also added to a number of commercial property holdings, the likes of Shaftesbury Capital, for example, which invests across much of London’s West End. In terms of sales, we took profits across a number of the banks following very strong
performance. The likes of NatWest and Barclays were both reduced. We also sold the holding in Marks & Spencer following a period of good performance and the shares re-rating. And other sales included the likes of Dowlais, which received a bid from an American company.

Tariffs are currently the largest source of uncertainty in the equity market. I mean it’s very uncertain in terms of whether they will be imposed, but say they do, and if they are imposed for a prolonged period, we would expect them to cause a higher level of iinflation for the US economy and a lower level of economic growth in the US. For the UK, the outlook is more uncertain and I would say more balanced. We think the UK economy will be relatively resilient to tariffs. It’s a service-led economy. It’s an economy where consumers and businesses have built up a resilience. The consumers have built up savings balances on average. UK businesses have been conservative in how much borrowings they’re willing to take out. This leaves us in a resilient place at a time when UK equity market valuations are considerably lower than the US and in continental Europe. It’s a very uncertain outlook, even more so than normal, but we need to think about what gives us a margin of safety, and in the UK we think we have a margin of safety both in terms of the economy and in terms of the equity market.