December Commentary - Lowland Investment Company

16/01/2018

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​December was a good month for the Trust in absolute terms, although it underperformed its benchmark. Lowland’s net asset value rose 3.4% on a total return basis (using debt at fair value) versus the FTSE All-Share which rose 4.8%.

Among the best performers was bowling alley operator Ten Entertainment. Its main peer, Hollywood Bowl, reported good results in December which showed that despite the difficult retail environment in the UK, sales growth in bowling as a subcategory remains encouraging. Also among the largest contributors was insurer Hiscox, as there are expectations that January insurance renewals will show positive pricing trends following a number of catastrophes (such as US hurricanes) in 2017. We have gently reduced the holding as while it remains an excellent quality business (capable of generating high returns over the underwriting cycle) it is trading on a high price to book versus history.

The largest (actively held) detractor from performance was specialist materials designer and manufacturer Low & Bonar. This reported poor results from its coated textiles division, which makes materials such as truck tarpaulins. This was particularly disappointing as it reported weak results from a different division in October, so earnings forecasts have quickly deteriorated. Where the shares are currently trading they are, in our view, not factoring in a recovery in margins from here and there are good parts of the business that remain (so far) unaffected; therefore we have not reduced the holding.
 
Gearing remains at a similar level to last month and currently stands at approximately 10% net assets. On the whole we continue to find that well managed companies with good potential for earnings growth are trading at relatively high valuations versus history. This does not, however, preclude there being interesting opportunities and during the month we added a new position in Sabre Insurance, a motor insurance IPO. This provides insurance for people that are difficult to insure (such as students, professional sports people or people with expensive cars). Sabre have a strong underwriting track record in their niche portion of the market and came to the market with an attractive dividend yield.
 
Glossary –
Absolute terms – refers to the actual, not relative investment returns achieved.
Net asset value – The total value of a fund's assets less its liabilities.
Total return basis – includes interest, capital gains, dividends and distributions realised over a given period of time.
Debt at fair value – the price that would be received should the debt be sold in the current market.
High price to book – a ratio used to compare a company’s current value to its book value. (Book value being the total value of the company's assets that shareholders would theoretically receive if a company were liquidated).
Gearing – A measure of a company’s leverage that shows how far its operations are funded by lenders versus shareholders. It is a measure of the debt level of a company. Within investment trusts it refers to how much money the trust borrows for investment purposes.
IPO – short for initial public offering, this is the first time that the stock of a private company is offered to the public.
 

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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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), 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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