Fund Manager commentary - Lowland Investment Company



In January, the Trust’s net asset value (NAV) grew 5.0% versus a 4.2% rise in the FTSE All-Share (both on a total return basis). In a reversal of the performance during December it was the industrials sector that was the biggest contributor to performance. The weakness in industrials in late 2018 was generally due to concerns regarding a slowdown in global economic growth rather than anything company specific. As companies have begun reporting full year results, trading has been shown to be more nuanced than share prices were suggesting, with pockets of both strength and weakness.  

The best performer during the month was specialist engineer Senior, which supplies components primarily to the aerospace industry. This performed poorly during December, owing to short-term pressure on margins as a result of them winning new work in their aerospace division (which requires upfront investment). This new work will lead to higher sales and earnings growth in future years so we were surprised at the scale of the negative reaction, therefore January’s strong performance was partially a reversal following a weak end to 2018.

The largest detractor from performance was insurer Hiscox. This had performed well during 2018 and has been a strong performer for the portfolio over the long term, having been held since 1992. As a result, it was trading at a material premium to the insurance sector.  While Hiscox is an excellent quality company capable of generating good returns over the underwriting cycle, the scale of the valuation premium has led us to reduce the size of the position. 

We were quite active during the month, using share price weakness to add to a number of existing holdings including Severn Trent, TT Electronics, Babcock and Findel. A new position was added in XP Power, which makes power converters for a range of end markets such as healthcare, general industry and semi-conductors. Due to concerns regarding a slowdown in semi-conductor end demand the shares have de-rated materially and we used this weakness to establish a position. While there will be pockets of weakness in end markets they generate excellent operating margins with a strong balance sheet.

Three positions were exited during the month – satellite operator Inmarsat, convenience store operator McColl’s and kettle safety controls company Strix. In the case of Inmarsat and McColl’s while the companies operate in completely different end markets the reasons for the sale were similar – both had high levels of leverage and little  visibility regarding operational performance. Strix was sold on valuation grounds having been a strong performer since IPO.

December and January have been very volatile months with little company-specific news driving share price moves. We are aiming to use this volatility in both directions, to reduce holdings where we think the valuation looks high versus history and add to holdings where we think the share price reaction seems overdone. We would expect that our turnover will be slightly higher than it is normally (the long term average is approximately 20% p.a.) during this period. 

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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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 investment products and services are provided by Janus Capital International Limited (reg no. 3594615), 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 registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). 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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