April Commentary - Lowland Investment Company

16/05/2018

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​During April, the Trust rose in absolute terms and slightly underperformed its benchmark. Lowland’s net asset value rose 6.3% on a total return basis (using debt at fair value) versus the FTSE All-Share which increased 6.4%. Within this, a rise in bond yields meant that Lowland’s private placement note was fair valued downwards. Keeping debt at par, Lowland’s net asset value increased 6.2%.

The best performer during the month was Airea, a floor cover manufacturer. The shares rose sharply after James Halstead PLC announced it was evaluating a takeover bid for the company. No formal bid has been made but the shares remained at an elevated level throughout the month. UK takeover rules require James Halstead to make a formal offer on or before May 2nd, so we should have more information on this in due course. In the meantime, the business continues to grow strongly, margins are expanding and the cash generation is strong.
 
The worst performer during the month was shipbroker, Clarkson. The company issued a profit warning due to a challenging global shipping market and a foreign exchange drag from a stronger sterling. We continue to believe the shipping market will recover over the medium term and are prepared to look through short term weakness given the company’s market leading position.
 
Elsewhere, the Trust’s underweight position in oil & gas was detrimental to relative returns. Company share price performance had lagged the increase in the oil price in recent months, but the market reacted favourably during April to improved capital discipline and dividends being covered by free cash flow in the last set of results. 
 
The increase in gearing recently is driven by the view that there are opportunities in the market to purchase sound companies at reasonable valuations with good long term growth prospects. We are therefore marginal net buyers on weak days of companies where we believe the challenges are well aired and discounted in the share prices. During the month, we added to HICL Infrastructure and reopened a position in Hammerson. HCIL Infrastructure has been impacted by fears that infrastructure assets will be nationalised under a Corbyn government, despite the contracts held by infrastructure owners being long term in nature. At purchase, Hammerson is trading around a 40% discount to its net asset value. Management is under pressure from investors to prove its asset valuations after a bid from Klepierre was rebuffed, so we could see asset sales and increased shareholder returns in time.
 
Glossary
Absolute terms – An amount that is expressed in absolute terms is expressed as a fixed amount rather than referring to variable factors such as what you earn or the effects of inflation.
Benchmark – A standard against which a portfolio's performance can be measured. For example, the performance of a UK equity fund may be benchmarked against a market index such as the FTSE 100, which represents the 100 largest companies listed on the London Stock Exchange. A benchmark is often called an index.
Underweight – To hold a lower weighting of an individual security, asset class, sector, or geographical region than a portfolio’s benchmark.
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.

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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