September Commentary: Lowland Investment Company

05/10/2016

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UK equities rose during September, with the FTSE All-Share rising 1.7% on a total return basis.  Within this the best performers in the index were predominantly mining companies such as Anglo American and Glencore, as commodity prices including coking coal recovered. In this context the Trust underperformed, rising 1.3% on a total return basis, as we currently hold little in the mining sector. While we added to the sector towards the end of 2015 (which worked well), in hindsight we sold the positions in companies such as Glencore too early as we felt that market expectations (in areas such as the speed at which they would achieve asset sales) had risen too far, too fast.

 

The largest individual contributor to performance during the month was Avon Rubber, which performed well following news that one of its protective gas masks had won a significant order from a US police department. This was taken positively as it diversifies their exposure away from the Middle East and the US Department of Defence and there is potential for other cities to also place orders in the future.
 
Of the companies we own, among the largest detractors from performance was support services company Interserve following profit warnings from peers Mitie and Capita. We see little read across - Interserve are steadily working through their problematic energy-from-waste contracts.
 
The largest switch during the month was in the insurance sector, where we sold the position in Legal & General and added to our existing position in Prudential. In our view there is greater potential for earnings growth (and subsequently dividend growth) at Prudential, whereas Legal & General is already paying out the majority of its capital generation therefore potential for dividend growth is limited.
 
We are likely to be entering a higher inflation period in the UK given the fall in sterling, a further rise in the national living wage and rolling through the beneficial effects of lower commodity prices. With this backdrop it is increasingly important to pick companies that are specialists in what they do and that operate in industries with strong barriers to entry.

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.


Important information

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

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.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

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

  • 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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Fund name changes

Please note that from the 15 December 2017 funds previously named Janus or Henderson have been renamed Janus Henderson. This change aligns our product names with our name, Janus Henderson Investors, following the merger of Janus Capital and Henderson Global Investors in May 2017.

This name change does not impact on the management of the underlying funds and investors and advisers are not required to take any action.