- Multi-cap trust underperforms due to small cap bias
- Dividend cover restored
- Cranswick and Marshalls among new purchases
Janus Henderson-managed Lowland (LWI) underperformed the FTSE All-Share in the year to September 2022 as the multi-cap trust's bias to higher-yielding shares and smaller companies lagged an index with a pronounced large cap bent.
On the positive side of the ledger, the annual dividend was raised from 6.025p to 6.1p, with dividend cover now restored after two years of dipping into revenue reserves.
‘There is satisfaction to be had that the dividend policy survived Brexit, COVID and, so far at least, war in the Ukraine,’ said chairman Robert Robertson, who feels that the income side of Lowland’s objective has been ‘satisfactorily served’.
Lowland’s performance has picked up since the year-end with the fund returning 10.5% in net asset value (NAV) terms versus 9% for the benchmark.
WHY DID THE PORTFOLIO UNDERPERFORM?
Lowland’s NAV fell by 14.8% last year, compared with a 4% decline in the FTSE All-Share.
Managed by James Henderson and Laura Foll, the trust’s investment policy is designed so that exposure to the UK’s 100 largest companies is capped at 50% of the fund in normal circumstances, whereas these now represent about 83% of the All-Share.
This structural bias towards small and mid cap stocks was the main driver of Lowland’s underperformance, as the very largest stocks drove the index’s returns.
At the end of the year Lowland, which aims to provide shareholders with better-than-average dividend growth, had 47.8% of its assets invested in FTSE 100 stocks, compared with 83.3% in the index.
Underweight the higher end of the market, Lowland is also overweight the lower end, with FTSE Small Cap and AIM companies comprising 28.9% of the portfolio compared with a tiny 2.7% in the benchmark.
BEST AND WORST PERFORMERS
At the stock level, last year’s poor performers included Studio Retail, the online value retailer written down to zero after collapsing before being snatched from the jaws of administration by Mike Ashley’s Frasers (FRAS).
News publisher Reach (RCH) was roiled by the rising costs of print and pressure on digital advertising yields, while Morgan Advanced Materials (MGAM) fell due to concerns surrounding a global economic slowdown.
Among Lowland’s best performers were Serica Energy (SQZ:AIM), a beneficiary of rising energy prices, and insurer Aviva (AV.), which performed well following material distributions to shareholders.
New purchases in the year included pork and poultry producer Cranswick (CWK) and paving stones-to-roof tiles supplier Marshalls (MSLH).
Turing to the outlook, Foll and Henderson highlighted Lowland’s ‘relatively long and broadly-based’ portfolio of stocks and insisted ‘the diversification this brings in uncertain times is important for long-term capital preservation and growth.
‘Companies are dealing with changes in consumer behaviour and advances in technology. Some will not keep pace but the belief is many will prosper and grow. We believe there will be substantial share price appreciation when these strengths come to be more recognised.’
