View the article online at http://citywire.co.uk/money/article/a875622
Henderson holds nerve after brutal Lowland sell-off
The Lowland investment trust has taken a hammering since the turn of the year, but manager James Henderson is sticking to his guns.
Shares in the Lowland (LWI ) investment trust have been subjected to a brutal sell-off since the turn of the year, as the out-of-favour areas of the market that are manager James Henderson's hunting ground took yet another tumble.
Henderson prides himself as a contrarian, value-driven investor and it is that philosophy that has led him to selling house builders after their strong run, topping up his stake in beaten-up Shell (RDSb) and buying embattled miner Glencore (GLEN).
But contrarian investors like Henderson who have been waiting for the commodities rout to turn have found 2016 has begun as 2015 left off, only with more vengeance.
As the oil price hurtled below $30 a barrel, Lowland's share price took its own tumble. By the end of trading yesterday, the shares were down 18.1% since the turn of the year, nearly double the fall in its net asset value. A 6.2% rally in its shares today has repaired some of that damage, but they remain 13.7% down in the space of just over a fortnight.
'The last six months for me have been a difficult six months,' said Henderson, speaking at Winterflood's annual investment trust conference. 'I never thought I would be apologising to boards two weeks after buying Shell. But I am.'
Henderson invests across the UK market for Lowland, buying up not just FTSE 100 names but also the smaller companies listed on the FTSE 250 and Small Cap indices and the Alternative Investment Market.
He has been titling the trust towards some of the out-of-favour areas of the FTSE 100 recently, funding the move by reducing stakes in stocks that have done well, such as lender Provident Financial (PFG) and house builder Bellway (BWY).
'I'm buying them too early,' he said, but maintained it was the right thing for a contrarian investor to do. House builders, which have enjoyed consistent earnings upgrades and rerating, are now trading on around two times their 'book' value, compared to the half book value at which Henderson was buying in.
'At twice book the contrarian has to be leaving the party,' he said. 'You're aware you always move too early,' he added. 'When people feel really comfortable, that's when a lot of it is in the price.'
Oil price recovery
Despite Henderson's contrarian approach, the trust still holds less than its benchmark, the FTSE All-Share, in oil and mining. Henderson's deputy manager on the trust, Laura Foll, said they had added to their Shell holding as, unlike some of the smaller oil companies, it would be one of the survivors of the low crude price, which she expected would eventually recover.
'The oil price will recover,' she said, speaking at a separate event for journalists. 'We don't want to pick a particular date or time when that will happen, but such big capital expenditure cuts will have to have an effect on production.'
Should the oil price remain at current levels, Shell's dividend, although safe for this year, is likely to be vulnerable. 'At this level of oil, even the great Shell, which hasn't cut the dividend since the war, will have to look at its dividend,' said Henderson.
Dividends at Rolls-Royce (RR), another contrarian pick, are likely to come under more immediate threat, as the company has already put its payment 'under review. 'You can guess what that means,' said Foll.
'It will take time but I think he is doing the right things in simplifying its management structure,' he said.
He added that miner Glencore represented, like Shell, a likely survivor in a beaten-up sector. 'We like the management team and ultimately we think the share price should recover,' he said.
'The good quality companies do come out of the other side and it's in these sorts of downturns that people relearn their disciplines. The things they can control they begin to do better.'
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- Royal Dutch Shell PLC (RDSb.L)
- Glencore PLC (GLEN.L)
- Provident Financial PLC (PFG.L)
- Bellway PLC (BWY.L)
- Rolls-Royce Holdings PLC (RR.L)
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- James Henderson: why I sold Bellway to buy Glencore
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