Lowland Investment Company PLC Fund Data

UK equities fell sharply in March as a result of conflict in the Middle East. A steep rise in the oil price, from around $70 a barrel to (at its peak) over $100 a barrel, led to fears of a resurgence in inflation. At a time when inflation had otherwise been falling and central banks such as the Bank of England (BoE) were cutting interest rates, the rise in the oil price reversed future expectations for UK interest rates from rate cuts to rate rises. Time will tell whether this proves to be the correct assumption. In our view, labour markets are weaker now than they were in 2022, so the wage-price spiral that occurred then cannot be assumed to repeat. In the UK, the best performers during the month included oil producers (such as BP and Shell), as well as producers of defence equipment. The weakest performers included sectors that tend to be most sensitive to interest rate increases, such as commercial real estate, housebuilders and building materials companies. March was a poor month for the portfolio in both absolute terms and relative to its FTSE All-Share Index benchmark. In a falling market, gearing detracted from returns. At the stock-specific level, the weakest performers were companies with exposure to housebuilding activity such as bathroom products supplier Norcros, housebuilder Bellway and retailer DFS. The best performers were commodity producers including Serica Energy, which is a North Sea oil and gas producer. During the month we added to existing holdings in Marshalls and Breedon based on share price weakness. Both stocks were trading at lower than historic average levels and showing earnings that seemed depressed based on where we are in the economic cycle. We also added to the position in Mears Group, which performs maintenance activity for social housing and has been seeing strong demand for its services. While the uncertainty surrounding the economic outlook has undoubtedly increased as a result of the evolving conflict in the Middle East, UK equity valuations started the month at already depressed levels relative to overseas equities. This meant that at the end of March, the portfolio was trading on a 12-month historic price-to-earnings (P/E) ratio of just over 12x, which is a level we continue to view as attractive for the businesses we tend to hold, which are often market-leading, well-managed and running conservative balance sheets.

UK equities fell sharply in March as a result of conflict in the Middle East. A steep rise in the oil price, from around $70 a barrel to (at its peak) over $100 a barrel, led to fears of a resurgence in inflation. At a time when inflation had otherwise been falling and central banks such as the Bank of England (BoE) were cutting interest rates, the rise in the oil price reversed future expectations for UK interest rates from rate cuts to rate rises. Time will tell whether this proves to be the correct assumption. In our view, labour markets are weaker now than they were in 2022, so the wage-price spiral that occurred then cannot be assumed to repeat. In the UK, the best performers during the month included oil producers (such as BP and Shell), as well as producers of defence equipment. The weakest performers included sectors that tend to be most sensitive to interest rate increases, such as commercial real estate, housebuilders and building materials companies. March was a poor month for the portfolio in both absolute terms and relative to its FTSE All-Share Index benchmark. In a falling market, gearing detracted from returns. At the stock-specific level, the weakest performers were companies with exposure to housebuilding activity such as bathroom products supplier Norcros, housebuilder Bellway and retailer DFS. The best performers were commodity producers including Serica Energy, which is a North Sea oil and gas producer. During the month we added to existing holdings in Marshalls and Breedon based on share price weakness. Both stocks were trading at lower than historic average levels and showing earnings that seemed depressed based on where we are in the economic cycle. We also added to the position in Mears Group, which performs maintenance activity for social housing and has been seeing strong demand for its services. While the uncertainty surrounding the economic outlook has undoubtedly increased as a result of the evolving conflict in the Middle East, UK equity valuations started the month at already depressed levels relative to overseas equities. This meant that at the end of March, the portfolio was trading on a 12-month historic price-to-earnings (P/E) ratio of just over 12x, which is a level we continue to view as attractive for the businesses we tend to hold, which are often market-leading, well-managed and running conservative balance sheets.