During June, Lowland’s net asset value declined 0.2% on a total return basis (using debt at fair value) and performed in line with the benchmark. Within this, an increase in bond yields meant that Lowland’s private placement note was fair valued downwards. Keeping debt at par, Lowland’s net asset value decreased 0.3%.
The best performer during the month was pharmaceutical company, 4D Pharma. The shares rose after the company announced a clinical collaboration with Merck to investigate the combination of Merck’s cancer drug with 4D’s live biotherapeutic candidate for patients with solid tumours. This partnership is encouraging because it gives credence to 4D’s treatments, given Merck is a large pharmaceutical company that allocates a high proportion of their research and development spend to cancer research. In addition, the company announced that its irritable bowel syndrome drug was shown to be safe and well-tolerated in a recent clinical study. We added to the position following the positive news flow.
The worst performer during the month was specialty chemicals company, Elementis. Investors responded negatively to the company’s intention to acquire Mondo Minerals, a high grade talc miner and producer, at a high valuation. The deal comes in close succession to the last highly valued acquisition by the new CEO and will require a capital raise for funding. The company was previously focussed on generating strong cash flows, thus we are evaluating how management’s acquisitive behaviour may impact our investment thesis.
We are marginal net buyers on weak days of companies where we believe the challenges are well aired and discounted in the share prices. We, therefore, added to our positions in Centrica and Greene King during the month on valuation grounds. In addition, we partook in the IPO of Anexo, a solicitor and non-fault motorist claims manager. Anexo lends customers vehicles while their insurance claims are being processed in exchange for a proportion of their final insurance pay outs. This is particularly useful for individuals that require a vehicle in order to perform their job and who are less likely to have sufficient funds to replace their vehicle without an insurance pay out, such as individuals in the delivery industry. The strong know-how in the business is difficult to replicate. We felt the company was coming to market at a large discount to its intrinsic value.