October Commentary: Lowland Investment Company

09/11/2016

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​UK equities rose during October, with the FTSE All-Share rising 0.6% on a total return basis. Performance was led by the FTSE 100, which rose 1.0% as a further fall in sterling boosted largely internationally derived earnings. In contrast the more domestically exposed FTSE 250 and FTSE Small-Cap indices performed poorly, as sterling weakness is likely to put upward pressure on inflation and downward pressure on real wages in the UK. In this context Lowland, which is a blend of large, medium and small companies, underperformed the FTSE All-Share and the net asset value remained approximately flat on a total return basis.

 
At the stock level the best performer during the month was Standard Chartered. Following their dividend cut and capital raise last year, the business is well positioned to return to growth and we are confident that over time it can return to paying an attractive dividend to shareholders. The largest individual detractor from performance was industrial engineer Senior, which lowered earnings guidance as a result of slower than expected ramp up of some civil aerospace programmes as well as ongoing weakness in some of their industrial end markets. While this is disappointing, over the long term they remain well placed with good content volumes on large civil and defence aerospace programmes. This should lead to sales and margin recovery in future.
 
During the month trading volume remained low and we have maintained our current low level of gearing (6% at month end). We have continued to reduce holdings which we see as approaching fair value such as Croda, Hill & Smith and Scapa. Where we have added to holdings it is often on prospects for greater income returns to shareholders. For example we added to our holding in retailer Shoe Zone following their full year results. This showed them continuing to have a strong net cash balance sheet so we are hopeful of a further special dividend next year.
 

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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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

  • 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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