Fund Manager Commentary - Lowland Investment Company



In June the Lowland NAV rose 1.1% versus the FTSE All-Share benchmark which rose 3.7%. There were a few key reasons for this underperformance.
The first was size, as medium and smaller companies underperformed (AIM had a particularly poor month, -4.1%, and the FTSE Small Cap was also weak, it rose 0.5% versus the FTSE 100 +4.0%). It is difficult to pinpoint the exact reason for this smaller company weakness but there is an element that they are (on average) more domestically exposed at a time when there are concerns around Brexit and the possibility of a General Election.
The second element of underperformance this month was stock specifics, the most material (that are held within the portfolio) being International Personal Finance and Somero Enterprises. In the case of IPF (the international version of Provident Financial) at the end of the month the Polish government announced that it is intending to pass legislation to cap the rate of interest that can be charged on loans such that IPF may no longer be a viable operator in the country. Poland is a material source of earnings for the group therefore earnings forecasts will need to come down substantially, but as yet there is little clarity on numbers and the government proposal may well be amended before it gets passed into law. We have continued to hold the position pending more clarity on numbers and a meeting with the management team. In the case of Somero (which makes concrete levelling equipment predominantly for the US market), there has been unusually heavy rainfall in the US earlier this year which has delayed building work and therefore delayed Somero orders. We have spoken to the management team and feel confident that it is genuinely weather that is causing lower than expected orders (not tariffs causing growth concerns etc). We have subsequently added a small amount to the holding.

It has been a frustrating period for performance. The difference in valuation levels between ‘growth’ and ‘value’ stocks in the UK market has reached extreme levels versus historic averages. We continue to think there is considerable value in portions of the UK market but it would be disingenuous for us to confidently pinpoint what the catalyst will be for a re-rating of ‘value’.  It will likely require a levelling out of bond yields and a confidence that the global economy is not as bad as feared. In the meantime it is encouraging that other buyers of assets are emerging and we have had several takeover offers so far this year including Manx Telecom, A&J Mucklow and Helical (this was approached twice although rebuffed by the management team).

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.

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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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