Lowland Investment Company aims to perform a simple, but valuable, job for its investors - a rising and predictable level of income.
And it has a record of doing just that. An investment trust focused on the UK, its dividend has grown at a compounded annual rate of 7.3% since 1993 and has risen in cash terms in the vast majority of those years. That’s a great comfort for investors using their investment to provide an income.
To achieve it, the investment trust has an approach that Laura Foll, who co-manages the trust with James Henderson, describes as “a third, a third, a third”. That’s a third in smaller companies, a third in medium sized companies and a third in large companies.
“Small and medium sized companies tend to have a much greater level of sales and earnings growth”, she says. “And that usually means they can deliver dividend growth as well.”
The consistently rising dividend that Lowland has paid has been helped by its investment trust structure, which allows fund managers to better control the flow of income to investors than is possible in an open-ended fund. When underlying companies pay dividends, Lowland can chose to pay this all out to its shareholders or hold some back for future years.
The ‘multi-cap’ approach means that the make-up of the Lowland portfolio looks different from the UK market, with a greater weighting in smaller companies and less in the giant multinational companies that dominate the FTSE All Share index. Foll explained that Lowland is about 50% exposed to companies earning their profits in the UK, compared to about 25% for the market overall.
The approach has had implications in the period since the 2016 referendum on the UK’s membership of the European Union. After the vote to leave there was a fall in the value of the pound and a widening of the valuations of domestic facing companies (which are hurt by weak sterling and slower UK growth) relative to those that make their sales overseas.
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Foll puts this difference in valuations at about 20%. As it is more exposed to domestic companies, Lowland would benefit from any reversal of the trend that has been put in place since the EU referendum. It may underperform if the trend continues.
Like all investment trusts, the value of Lowland’s shares moves independently from the value of the underlying assets. Foll said that it was usual for the shares to trade at around a 3% discount to Net Asset Value.
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The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.