Smallers provide resilience for Lowland

"The more domestically orientated indices have held up much better so Lowland has actually gone to a small premium to net asset value (NAV) which it hadn't been on for a while," explains Laura Foll, co-manager of Lowland Investment Company. "It is holding up slightly better partly because of its small- and medium-sized company allocation, which together account for around two thirds of the fund. So its NAV and share price performance have been holding up reasonably well in the market turmoil.

"Some of the smaller and medium companies, especially the smallers, don't trade often so their prices have held up better than they probably should have - they have been like a hit in the pocket. In terms of their valuations, a few months ago the discount on them was small but it has now closed because they held up well in this market.

"The FTSE 250, however, is still at a bit of a premium."

A number of UK smaller companies have recently delivered good results, examples being Avon Rubber (AVON) and Johnson Service Group (JSG).

"Hill & Smith (HILS), which makes crash barriers and also has a galvanising business, had a really strong set of results a few weeks ago in which the margins grew again - and they put up the dividend 11 per cent," adds Ms Foll. "So we are seeing really quite good results from the smaller companies within the UK driven by the strength of our economy, and in particular the strength of infrastructure spending within the UK."

She highlights the good level of dividend growth among UK companies, especially from smaller and medium sized companies. "XP Power (XPP) has put up its dividend 8 per cent and neither it nor Hill & Smith is stretched in terms of balance sheets: the increases are quite conservative for both of them," she says. "We are quite encouraged as we are seeing good dividend growth despite the turmoil."

However, the falls in larger sized companies have given Lowland's managers an opportunity to add some holdings. "We are still sticking with our industrials overweight and continue to have a heavy weighting in the non life insurance sector, but have made a few changes at the sidelines where we think we've seen some quite good value emerge in some of the large-cap areas. So we have been adding a small amount to our holdings in Glencore (GLEN), Legal & General (LGEN) and Tesco (TSCO). But there have been no dramatic portfolio changes."

Ms Foll says opportunities at the moment are to be found on a company-by-company basis rather than by sector. However, Lowland's managers had used the fall in the oil price and consequent falls in the share prices of oil companies to add to holdings such as Circle Oil (COP). This was on the grounds that the big oil companies are reducing the number of oil rigs and capital spending, which could lead to a reduction in future supply, so they believe it is unlikely the oil price will stay down in the medium term.

Performance hasn't turned yet and Circle Oil was among the largest detractors over Lowland's half-year results to 31 March 2015.

"We added to Circle Oil originally in summer 2013, so before the oil price drop at around 16 or 17p, and then at slightly higher levels," says Ms Foll. "Now it is around 6p so it hasn't been a good performer. But we are still encouraged that Circle Oil has genuinely good producing assets in places like Egypt and Morocco - they are not just exploration assets so there is cash flow in the business which is encouraging.

"We met Circle Oil's new chief executive officer recently and he thinks there are good opportunities to take costs out of the business, so we have kept with the holding."

MORE ON VIDEO

Watch Laura Foll talking to Leonora Walters about Lowland Investment Company's portfolio on our video: http://www.investorschronicle.co.uk/2015/09/04/funds-and-etfs/the-interview/navigating-uk-turbulence-FqHcU5rB5GzrHK0qXcMqRJ/article.html

Lowland Investment Company's share price return vs key indices

Source: Winterflood as at 7 September 2015

Top 10 holdings as at 31 July 2015