January Commentary - Lowland Investment Company

14/02/2018

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December was a broadly flat month for the Trust in absolute terms, although it outperformed its benchmark. Lowland’s net asset value declined -0.3% on a total return basis (using debt at fair value) versus the FTSE All-Share which declined -2%. Keeping debt at par Lowland’s net asset value declined 0.6%.

The best performer during the month was aerospace and auto parts manufacturer, GKN. The shares rose sharply following a takeover bid by Melrose. The bid was rebuffed by the GKN board on the view that the offer undervalues the company’s potential. GKN’s management has subsequently released details of a new cost cutting, capital allocation and company separation plan that provides a roadmap to improving operating returns in the medium term. In our view, the new company strategy and takeover offer provide shareholders with two viable approaches to unlocking value after a period of underperformance. We have taken some profits in the position following the bid.
 
The largest detractor from performance during the month was Carclo, a technical plastic and specialist wire manufacturer. The group released a disappointing trading statement which missed expectations due to delays in several large contracts. Management are now reviewing potential operating efficiencies in order to improve margins in the plastics division. The company’s financing position remains healthy and the current valuation provides some downside protection as management works to improve business fundamentals; therefore we have not reduced the holding.
 
Gearing remains at a similar level to last month and currently stands at approximately 9.5% 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 opportunities to top up positions and during the month we increased our holding in Gordon Dadds after management announced the acquisition of legal firm, White & Black, which appears to be accretive to the business going forwards.
 
Glossary:
 
Net asset value - the total value of a fund's assets less its liabilities.
 
Total return - the financial benefit, including income and appreciation of capital, that somebody gets from an investment.
 
Fair value - a sale price agreed to by a willing buyer and seller, assuming both parties enter the transaction freely. Many investments have a fair value determined by a market where the security is traded.
 
Gearing - how much money the Trust borrows for investment purposes.

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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