November Commentary - Lowland Investment Company

20/12/2017

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​November was a weak month for the Trust. The net asset value fell almost 2.0% on a total return basis (with debt at fair value) relative to the FTSE All-Share which fell 1.7%. The reasons for the underperformance were largely one-off stock specifics.

The largest detractor from performance was aerospace components supplier Senior. Senior shares have performed well year to date on the expectation that margins have troughed in both their aerospace and industrial divisions. The reason for the share price fall in November is that one of its peers, GKN, has come under margin pressure and this is casting some doubt as to whether Senior can increase its margins to the degree that some are expecting. Another of the detractors at the stock level was Daily Mail & General Trust, which has downgraded earnings expectations for next year as a result of a business disposal and some weakness within their consumer division (where print newspaper circulation and advertising revenues continue to decline).
 
The best performer during the month was Avon Rubber, which produces protective gas masks used by the US Department of Defence as well as equipment for the dairy industry. There had been concerns that as Avon Rubber was coming to the end of a long standing contract with the US DoD, they would struggle to replace the lost earnings. The management team, however, have done an excellent job of diversifying revenue such that work on new defence programmes will be sufficient to offset the legacy contract and the company can continue to grow earnings.
 
During the month we were a net investor and gearing rose to 11% net assets. Within this we have continued to gently rotate the portfolio away from higher valued, often small and medium sized companies, towards out of favour large-cap companies. This month the largest purchases included Vodafone, following encouraging results in which revenue growth seems to be inflecting upwards, and Babcock following a material de-rating which we felt was overdone. The largest sales included convenience store McColl’s Retail, building materials company Marshalls and brick manufacturer Ibstock. All were reduced on valuation grounds.

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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