Lowland Investment Company

Lowland Investment Company (LWI) has suffered a period of poor performance recently, with both its share price and NAV close to 12-month lows, as its value investment style has remained out of favour in a market where investors have preferred highly rated growth companies. Managers James Henderson and Laura Foll continue to see opportunities in both large and smaller UK companies that are growing their dividends, and LWI’s own dividend yield has reached a cyclical high of c 4.5%, a level that has historically been followed by strong NAV returns in subsequent years. Although underperformance in the past 12 months has weighed on the trust’s medium-term performance record, it has generated NAV and share price total returns of c 14% pa over 10 years, well ahead of both the FTSE All-Share Index return and the AIC UK Equity Income peer group.

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This spring the Association of Investment Companies (AIC) overhauled its sector classifications, adding 13 new sectors and renaming 15 others. This decision was made in an attempt to more accurately reflect the shape of the industry, and help offer investors greater clarity when comparing peers. Several of the changes came in the alternative asset spaces and these are very welcome. Alternative assets have been an area of increased popularity in recent years, making a rationalisation of the sector definitions valuable. The amount of money invested by investment companies in alternative assets has grown by 92% over the past five years, rising from £39.5 billion in 2014 to £75.9 billion in 2019 (as of 8 May 2019). There have also been significant, and sensible, changes to the way Asia-focused trusts have been classified. In this research we take a look at these new sectors and the broader changes which have taken place, identifying the trusts which now stand out in their new peer groups. We also explain where we think the sector classification system may still be leading investors astray, and consider the case for a slightly different set of divisions.

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Aberdeen Latin American Income Fund

Aberdeen Latin American Income Fund (ALAI) offers broad exposure to Latin America (both equities and government debt). It is managed by Aberdeen Standard Investments’ (ASI’s) well-resourced global emerging markets equities and emerging market debt teams. They are cautiously optimistic on the outlook for Latin America, believing the continued low interest-rate environment is supportive for corporate earnings growth and has the potential to stimulate investor demand for attractively valued assets in the region. ALAI has generated solid double-digit annualised NAV and share price total returns over the last three years, with particularly strong absolute and relative performance in the last 12 months. The fund offers an attractive 4.9% dividend yield.

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Aberdeen Asian Income Fund

Aberdeen Asian Income Fund (AAIF) aims to generate an above-average level of income and long-term capital growth, even in challenging times, from a diversified portfolio of Asia Pacific equities. Data from the fund’s manager Aberdeen Standard Investments (ASI) Asia highlight the importance of income in the region; since 2000, c 50% of share price total returns have been from reinvested dividends and corporates are supportive of dividend growth. AAIF has generated double-digit NAV and share price total returns over the last decade and currently offers a 4.4% dividend yield. The dividend is well covered and the fund has c 0.9x the FY18 annual distribution in revenue reserves.

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Aberdeen Emerging Markets Invstmt Co

Year to date, Aberdeen Emerging Markets (AEMC) has been performing well, outstripping both its benchmark and the average of its peer group by some margin (see page 8). The members of the investment management team, who predicted a resurgence in AEMC’s performance in 2019, believe there is more to come over the remainder of the year. They highlight that, globally, investors are still underweight emerging markets. In addition, the recent rate cut in the US could signal a halt to US dollar strength, to the benefit of emerging market currencies and stock markets.

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Aberdeen Emerging Markets Invstmt Co

Year to date, Aberdeen Emerging Markets (AEMC) has been performing well, outstripping both its benchmark and the average of its peer group by some margin (see page 8). The members of the investment management team, who predicted a resurgence in AEMC’s performance in 2019, believe there is more to come over the remainder of the year. They highlight that, globally, investors are still underweight emerging markets. In addition, the recent rate cut in the US could signal a halt to US dollar strength, to the benefit of emerging market currencies and stock markets.

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Tetragon Financial Group

Tetragon Financial Group (TFG) achieved an 8.1% NAV total return in H119, with a 13.3% annualised return on equity (ROE), well within its 10–15% long-term target range. While its performance lagged global equity markets over the half year, the resilience of Tetragon’s NAV in H218 helped it to achieve a 14.3% NAV total return over the year to 30 June 2019, compared with 6.3% and -3.1% for the MSCI AC World and FTSE All-Share indices, respectively, all in US dollar terms. Despite strong NAV returns in 2019, Tetragon’s discount remains wide at 48.6%, offering significant scope for future narrowing to enhance shareholder returns, while its 5.9% dividend yield leads the AIC’s Flexible Investment sector.

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S4 Capital

S4 Capital has announced the merger of MediaMonks with IMA, the largest full-service influencer marketing agency in Europe. Founded in 2010 by Emilie Tabor and Maddie Raedts, with Anneke Schogt joining as CEO in 2016, IMA has grown to a team of 85 digital experts. The agency has built a strong reputation in the fast-growing discipline of influencer marketing, which is forecast to double in size to $15bn over the next three years, and has established a worldwide network of 40,000 influencers across industries including fashion, retail, consumer electronics, automotive, travel, beauty and lifestyle. IMA has a blue-chip client list including Pernod Ricard, Under Armour, Beiersdiorf, Diesel, Microsoft, Heineken, Samsonite and Booking.com. No financial details on the transaction were released. We believe IMA is a strong strategic fit with MediaMonks and further develops its digital content marketing capability. S4 Capital released a very robust H1 trading update on 29th July which indicated that LFL Gross Profit growth had accelerated from +34% in Q1 to around +40% in H1. The group will report interims on 11th September.

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Anyone who takes a strong interest in financial markets sometimes feels the pull of market timing. It is seductive to imagine yourself a canny trader, buying or selling positions just before the market shifts, trading investments daily and beating the herd with superior analysis and instincts. We can add to the existing research suggesting this is a bad idea, and that taking a long-term view of your investments is the way to go. We looked at investment trusts that have outperformed over the past ten years and ran monthly NAV returns. We then calculated how many months were responsible for their outperformance. In other words, how many months did you need to miss to have ended up with market performance or less, negating any benefit of choosing an active fund over a passive fund? The results were surprisingly low, suggesting that switching in and out of investment trusts is fraught with danger and a potential recipe for underperformance, and underlining the case for a long term approach.

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