Fund Manager commentary - Lowland Investment Company



​In March Lowland’s net asset value fell 1.1% while the FTSE All-Share benchmark rose 2.7%. The predominant reason for the underperformance was falling bond yields which came about due to ‘lower for longer’ interest rate guidance from central banks such as the Federal Reserve. This had two effects on the portfolio – the first was that in a reversal of trends year to date defensive sectors (such as consumer staples) performed strongly while cyclical sectors (such as industrials) underperformed. The second effect was that the fair value of the private placement moved quite sharply upwards and this is now taking 9p off the fair value NAV (detracting 0.3% from performance during the month).

At the stock level, the best performer was Churchill China, which makes ceramics primarily for the hospitality industry. It reported excellent full year numbers in which the hospitality part of the business grew strongly and it continues to build on its existing net cash balance sheet. Some of the industrial holdings (such as Somero Enterprises, TT Electronics and XP Power) also performed well following encouraging results.
The largest (actively held) detractor during the month was K3 Capital, a UK corporate broker. There was no company specific news but the business is entirely domestic and the shares have performed poorly in anticipation of the fact that there may be fewer willing buyers and sellers of UK businesses in the current climate. On weakness we added (in small size) to the holding as over the long term K3 Capital are well placed to take market share and in the interim have a strong net cash balance sheet. 
The largest purchase during the month was Royal Bank of Scotland. Earlier this year RBS announced an encouraging special dividend and in our view has the potential to return materially more cash to shareholders (via dividends and share buybacks) in the future. We also took a small new position in UK housebuilder Bellway, which trades at a discount to the wider UK housebuilding sector despite similar returns and better potential for volume growth.
The FTSE All-Share is currently paying a 4.5% dividend yield with scope to modestly grow while the 10 year UK gilt is now yielding less than 1%. Therefore while there is considerable economic uncertainty (both in the UK and globally) what gives us confidence to be net investors is the available cash returns to shareholders.

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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