London, UK, 9 January 2023
Edison issues update on Lowland Investment Company (LWI)
The last 12 months have been difficult for Lowland Investment Company (LWI). Combined, the weakness in UK mid and small caps' performance, UK corporate earnings and value investing have been a notably powerful headwind for this multi-cap income portfolio. However, the managers, James Henderson and Laura Foll, are resolute in maintaining their mildly contrarian approach to investing in under-researched small- and mid-sized UK companies for growth in capital and income while selectively blending with larger, less volatile, above-average dividend paying companies. Thus, it is reassuring to see the very strong recovery in portfolio revenue through FY22 (+43% y-o-y) from the depths of the pandemic, which gives some indication as to the resilience and positive outlook for the portfolio at the company level. In addition, LWI's portfolio is currently trading on a historical P/E ratio of 8.7x versus its long-term average of 12.7x and the broad UK market's valuation of 9.6x. As a result, we believe LWI offers investors an attractive way to access the whole breadth of the UK market for both capital and income returns.
Taking a longer-term look at LWI's performance it is perhaps informative to see that often when performance has been weaker (ie in 2002), investors have benefited from some exceptional returns in subsequent years (2003-06). This trend was repeated in 2008 when the portfolio had a very poor year, but with the exception of 2011, in the years 2009-13 LWI materially outperformed the broad market and peers. More recently, after a weak 2020, 2021 was a very strong year for returns. Clearly, there is no guarantee of history repeating itself but given the consistency of the approach under longstanding fund managers James Henderson (appointed in 1990) and Laura Foll (2013), it is possible that once investor sentiment returns to UK mid- and smaller-size companies in particular, LWI may once again return to this pattern of outperformance. In the meantime, investors are being paid a covered yield of 5.1% to wait (6 January 2023).
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