May Commentary: Lowland Investment Company



​May was a good month for the Trust in absolute terms although it underperformed the broader market. The net asset value rose 2.7% on a total return basis (with debt at fair value) relative to the FTSE All-Share which rose 4.4%.
The primary reason for the underperformance was that more domestically exposed smaller and medium sized companies (which are a substantial part of Lowland’s portfolio) underperformed their more international counterparts in the FTSE 100. In our view there are a few reasons for this. Firstly the domestic economic environment has become more uncertain as a result of the upcoming general election (where polls are narrowing at the time of writing). Secondly the economy is slowing, with Q1 GDP growth coming in lower than expected, and inflation is rising.

Among the largest contributors to performance during the month was Stobart Group. Following the IPO of their Eddie Stobart Logistics business in April they reported encouraging results from the remaining portfolio of assets such that they increased the quarterly dividend by 50%. As a result we added a small amount to the holding. Insurer Hiscox also performed well as the growth in their retail business (in both the UK and internationally) is allowing them to better withstand a tough pricing environment in other areas of the insurance market.
The biggest active detractor from performance was industrial chain manufacturer Renold. The end markets to which it is exposed, such as mining, energy and agriculture have been tough and this has put pressure on sales. Management, however, have made good progress in reducing costs and we think this puts them in a good position when the end markets recover.
We were modest net sellers during the month and the gearing is now 12%, having been 13% at the end of April. The sales were all companies where, while we like the underlying business and the management team, valuations are reaching levels where we feel it is appropriate to take profits. This included Scapa, Hill & Smith, Conviviality Retail and Johnson Service Group. We are, however, still finding attractive value opportunities to invest in, for example we took a small position in an IPO called PRS REIT. This is a REIT of private residential housing that has the potential for a 6% and growing dividend yield.

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.

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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