June Commentary: Lowland Investment Company

30/06/2017

Download

​June was a weak month for the Trust in absolute terms; the net asset value on a total return basis fell 1.9% relative to a 2.5% fall in the wider market.

The UK consumer is being squeezed. Inflation is running at a higher rate than nominal wage growth and this is impacting consumer confidence and spending. We are beginning to see this affecting some of our companies. DFS, for example, has seen a deterioration in sofa sales and as a result has lowered earnings expectations. We have maintained the (small) position as DFS is a market leader in its category and continues to be highly cash generative. However, it is a reminder that no matter how optically cheap a company looks on earnings multiples, in the event of a steep downgrade to earnings expectations shares are likely to fall materially (a steep downgrade is rarely ‘priced in’). We are currently wary of adding to UK domestic exposure for this reason.
 
Among the best performers during the month was Carclo, which makes LED lighting for ‘supercars’ as well as technical plastics. Carclo are winning good levels of work in their lighting business and are expanding their capabilities beyond ‘supercars’ to mass market models that should lead to good earnings growth in the future.

The largest individual detractor from performance was Cape, which provides services such as coatings and insulation primarily to the energy industry. The poor performance is we think a result of the recent fall in the oil price as well as poor results from peers.
We were a net seller during the month and gearing was brought down to 11%. Positions we reduced included Conviviality Retail, Headlam and Hill & Smith, all of which we like fundamentally but on valuation grounds thought it was prudent to reduce. Where we added to holdings it tended to be where we saw good income opportunities, adding to existing positions in Randall & Quilter and Redde.
 
Debt at fair value - a sale price agreed to by a willing buyer and seller, assuming both parties enter the transaction freely.

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), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (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. Telephone calls may be recorded and monitored.

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

Risk rating

Share

Discuss

 
 
[##ImageTip_CAPTCHA]
 

Important message