February Commentary: Lowland Investment Company

09/03/2018

Download

​During February, the Trust declined in absolute terms, although it outperformed its benchmark. Lowland’s net asset value declined 3.0% on a total return basis (using debt at fair value) versus the FTSE All-Share which declined 3.3%. Within this, a rise in bond yields means that Lowland’s private placement note was fair valued downwards. Keeping debt at par, Lowland’s net asset value declined 3.2%.

The best performer during the month was Royal Mail. The shares rose after the company announced an agreement with the union regarding pay and pensions. Analyst forecasts have been revised up in response to the news, as the deal provides improved visibility on future wage and pension costs. We continue to hold the shares given that we think the story is de-risked by this agreement and there remains a structural growth opportunity within the Packages segment.
 
The largest negative contributor during the month was early stage pharmaceutical company, 4D Pharma. The shares underperformed as investors became frustrated by the lack of news about a joint venture to co-fund future clinical trials. We continue to be patient with the stock because we believe the company has a good cash position and has reported positive indications from their bacteria treatments in early trials. Elsewhere, Standard Life Aberdeen (SLA) performed poorly after reports surfaced that Scottish Widows and Lloyd’s Banking Group Wealth are reviewing their long term asset management agreements, including the £109bn of assets currently managed by SLA. The shares took a further step down after the company announced the sale of its UK and European Life business to Phoenix at a perceived low valuation. We still see value in SLA despite the short term difficulties and have, therefore, maintained the position.
 
Gearing has increased slightly versus last month and currently stands at approximately 11.9% of net assets. On the whole we continue to find that companies that we think are well managed with good potential for earnings growth are trading at relatively high valuations versus history. In our opinion this does not, however, preclude there being opportunities to gradually purchase sound companies, which may be facing challenges, but that are trading at undemanding valuations. For example, during the month, we took advantage of weak trading days to initiate positions in Greene King, Hammerson and Severn Trent, where the valuations are low and the problems are well aired. 
 
Glossary –
Net asset value – the total value of a fund’s assets less its liabilities.
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.

For promotional purposes.


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), 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.

Risk rating

Share

Important message