February Commentary: Lowland Investment Company



​February was a disappointing month for Lowland relative to the benchmark, although in absolute terms it grew its net assets. On a total return basis its net asset value rose 1.4% relative to the FTSE All-Share which rose 3.1%. This underperformance was partly due to our lack of holding in Unilever (following the quickly withdrawn bid approach by Kraft Heinz) as well as some stock specific factors such as Interserve and Senior. The fall in bond yields also meant that the recently issued private placement was revalued upwards, detracting from performance.

Senior, which manufactures engineering products primarily for the aerospace industry, has downgraded earnings expectations for 2017 as their margins continue to fall. This is because of weakness in a number of their end markets (such as North American heavy trucks). We continue to hold our position in Senior as we think we are reaching the point of ‘maximum pain’ with regards earnings downgrades and Senior exhibits a number of strong long-term characteristics (namely technical expertise and high barriers to entry). In the case of Interserve, we have been disappointed by the scale at which provisions have needed to increase as a result of their problematic energy from waste contracts. We have continued to hold the position pending the arrival of a new Chief Executive.
During the month we added selectively to domestically exposed companies where we felt earnings estimates and valuation multiples had come down sufficiently to merit a position. This included new positions in Royal Mail and DFS. Both are market leaders in their areas and generate strong cash flow such that they can pay an attractive dividend yield. We also added to our position in insurer Aviva, which is making progress on simplifying its business (via exiting European joint ventures) and has good scope to grow the dividend.  We were modest net investors during the month and therefore our gearing has risen to 13% at month end.
*NB. Gearing refers to how much money the trust borrows for investment purposes.

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.

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