There's Still Value in UK Smaller Companies

VIDEO: Laura Foll, co-manager of the Gold-rated Lowland Investment Company says investing in the UK isn't easy but there are opportunities in smaller companies

Holly Black 3 June, 2019 | 2:56PM

 

 

Holly Black: Hi, welcome to the Morningstar Investment Series "Why Should I Invest with You?" I'm Holly Black with me in the studio today is Laura Foll. She's co-manager of Lowland Investment Company.

Hello.

Laura Foll: Hello.

Black: What does Lowland do?

Foll: So Lowland has a dual objective. It aims to grow both capital and income over the medium to long term and it does that through investing entirely in UK companies. We also have a few in Ireland, but basically it's a UK investment company with a good amount of income and good amount of income growth over time. What's really different about it is it invests in – it's multi-cap. So it goes all the way down to AIM it's got about a low teens percent of the portfolio in AIM and then it goes all the way up to the FTSE 100.

Black: But having a UK focus probably hasn’t been that easy for the past couple of years. What is it like to invest in the UK at the moment?

Foll: It has been difficult. So if you drill down in Lowland to where the sales are we'd be about 50% exposed to the UK and that would be more than our benchmark which is the FTSE All Share  it'd be more like 25% exposed to the UK and that more domestic weighting and being more tied into the domestic economy has been difficult. It's not so much that the UK economy is doing badly. The UK economy is doing absolutely fine, its more that there is this valuation overhang on UK domestic companies as a result of Brexit and also whether there'll be a general election. So there is just this general political uncertainty that’s causing an overhang on our more domestic stocks.

Black: Is that quite frustrating when you can see a company perhaps is fundamentally really good, but then you get these swings in sentiment that may be drive the share price down which isn’t warranted.

Foll: It's very frustrating to be honest and we used to be able to say you don’t worry about politics too much and focus on individual companies and that just hasn’t worked in the last few years. And frustratingly our performance is also quite tied into sterling because we are more tied into the domestic economy. I think all that we can do as investors is try and stick to our knitting and say that there is value here. And so we are adding to domestic companies but doing it quite slowly just recognising that I don’t think the uncertainty is going to go away anytime soon.

Black: But presumably that also means that you get good opportunities that other people are overlooking.

Foll: Yes definitely and we think where we can really add the most value is the smaller company [space] and so both within AIM and on the FTSE Small Cap Index. And that’s because quite frankly there are less people covering that area. So if James and I – I co-manage the portfolio with James Henderson – if me and James can find one of those companies in the smaller company end. They just won't be covered by that many people so hopefully we'll be able to get an edge on those companies by meeting their management team and going into site visits and that kind of thing.

Black: So you've been on the team for about 10 years, now that’s been the longest bull run period that we’ve had. So what has it been like managing the volatility that we've seen creeping back into market over the last year?

Foll: It's been difficult. I mean the fourth quarter last year was really quite difficult for smaller companies. To give you a better context AIM in that period was off over 20%. So it was a really weak period. And to be honest it was quite disconcerting because in some cases the companies didn’t really have much news and yet were falling really quite dramatically. I think what was really helpful for me during that time was to have James with me as well. So James has been managing Lowland since 1990. So he's seen many economic cycles and what he would say is just "don’t go too early". Your temptation on periods of that real weakness is to add a lot but actually you need to just go slowly, think about things and just add in small sizes where you see value, but don’t do it all in one go, just gently.

Black: Fantastic well thank you so much for joining us.

Foll: That’s alright.

Black: Thank you to you too.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lowland Ord1,362.50 GBX0.74

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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