'Brexit': Considerations for Lowland



The UK‘s EU Referendum is a significant binary risk for UK equities this year, and will particularly affect smaller and medium-sized companies that tend to be more domestically weighted than the FTSE 100 in terms of  sales and earnings. For Lowland, these smaller and medium-sized companies make up approximately two-thirds of the holdings.
What gives us some comfort ahead of the vote is that the Trust has a diversified list of holdings, approximately 120 in total, some of which should be more insulated in the event of a ‘leave’ vote. Our industrial holdings, for example, which comprise approximately a third of the portfolio, tend to be quite global in their sales exposure – a company like Elementis, for example, which makes speciality chemicals generates the majority of its sales and earnings outside of the UK, and would actually benefit from a fall in sterling as a result of a ‘leave’ vote.. Roughly 5% of the Trust is also held in university spin-out companies; the share price of these companies is driven by whether their technology will or will not work and whether it is successfully commercialised, not the outcome of the referendum. Therefore, a subset of the portfolio should be relatively more insulated. We are not, however, naïve to the fact that were there to be a leave vote it would have a very real effect on some of the businesses that we own in terms of where manufacturing is located and an immediate impact on the UK economy. Many businesses we meet on a day-to-day basis already have ‘contingency’ plans in place in the event of a leave vote.
We have not repositioned the Trust ahead of the EU referendum – historically in elections it tends to be the bookmakers that are more accurate than the polls and the bookmakers are putting a circa 70% chance of the UK remaining in the EU. There is also around 10-20% of the population that remain ‘undecided’ in polls – in our view these people tend to vote quite conservatively on the day and stick with the status quo (in this case remaining in the EU). Therefore, we believe that at the current time it is more likely than not the UK will remain in the EU. If this proves correct it would likely cause sterling to strengthen and, with the overhang removed, have a positive effect on UK equities.

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 is not a guide to future performance. 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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Lowland Investment Company plc

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.

Past performance is not a guide to future performance. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

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Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • 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.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • 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.
  • 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.
  • 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 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.
  • 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.

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