August Commentary: Lowland Investment Company

15/09/2017

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​August was a positive month for the Trust in absolute terms although it underperformed the broader market. The Trust’s net asset value rose 0.7% (on a total return basis with debt at fair value) relative to the FTSE All-Share which rose 1.4%. Within this a downward movement in bond yields meant that the £30mn private placement which we are fair valuing detracted from returns (keeping debt at par the NAV would have risen 0.8%).

The largest detractor from performance at the stock level was Provident Financial, which is a provider of door to door lending and subprime credit cards in the UK. This fell materially following a profits warning deriving from a new agent model in their home lending business, and separately an FCA investigation into their credit card business. This update was extremely disappointing from what has been one of the best performers in the Trust over the long term. While we had reduced the holding on share price strength last year, in hindsight we should have reduced further. Where the share price is currently we have chosen to keep the holding. Over time this should be a high returning business, and we do not feel this is factored into the current price/book multiple.
The largest positive contributor to returns was Senior, which makes components for the aerospace industry as well as industries including oil & gas and trucking. This reported encouraging first half results in which a number of their end markets seem to be inflecting.
 
During the month we continued to reduce holdings that in our view are approaching fair value following a period of strong performance. This included Hill & Smith (crash barriers), Marshalls (paving slabs), Johnson Service Group (textile rental) and Headlam (flooring distributor). This has brought the gearing down to approximately 7%. We are being cautious with purchases but during the month did add to two existing holdings - International Personal Finance and Epwin.

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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