The best fund to buy to ride Britain's post-pandemic recovery
The Lowland Investment trust is perfectly poised to profit from Britain’s post-pandemic bounce, says Max King.

James Henderson’s 31 years as manager of Lowland Investment Co. (LSE: LWI) make him the longest-serving investment-trust manager in the market. For most of that time, his record has been one of the best in the whole sector, although the UK-focused fund has struggled in the past few years. Flat returns in 2018 and 2019 were followed by a fall of 13% in 2020, even though the team was strengthened by the appointment of Laura Foll as co-manager five years ago.
In mid 2020, though, performance turned around and the recovery has continued this year. A 12-month return of 40%, nearly double that of the All-Share index, is one of the best in the UK sector. There is every sign that this will continue, helped by the trust’s ability to move freely between growth and value, large-cap and small, net cash and gearing.
From headwind to tailwind
“Brexit was a headwind for the UK market but is now a tail-wind,” says Foll. “UK equities have underperformed [Europe] by 20% in the last five years and the world by 60%, thanks to the 108% return of the US market. UK domestic earners have been the weakest – flat over five years while international earners have returned 40%. Yet the high savings-ratio of the pandemic will reverse, boosting domestic consumption, and this is not reflected in valuations or earnings forecasts. Domestic earners trade on 13.5 times 2021 earnings estimates but below ten on the trend of earnings going back to 2010. In addition, domestic earnings estimates are very conservative, as we see on a daily basis from talking to companies, with revenues back to 2019 levels but earnings estimates much lower.”
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
About 54% of the revenue of Lowland’s portfolio companies is derived from the UK, against 27% for the All-Share index. This and a focus on income implies a value bias, but the managers switch between growth, value and recovery according to opportunity. What they call “compounders”, small, mid and large-cap, comprise half the portfolio. These are companies generating steady long-term growth. In a £450m portfolio, there are over 100 holdings but annual turnover is low at about 10%. The FTSE 100 accounts for 43%, mid-caps 19%, small caps 15% and Aim shares (not all small companies) 17%. The rest is in non-UK companies.
Financials and industrials together account for 60% of the portfolio, including 9% in banks. “We have been adding,” says Foll, “as they trade on 25% discounts to net tangible assets but can earn their cost of capital. This is not the global financial crisis mark 2.” Recovery is also represented by GlaxoSmithKline, the second-biggest holding, while the largest, Phoenix Group (“retirement and savings”), is more of a value play. The fifth-largest holding and largest contributor to performance in the last year is Ilika, a pioneer in solid-state batteries. Another small-cap growth stock listed on Aim, K3 Capital, was the third-largest contributor, showing that riskier growth opportunities are very much on the managers’ horizon.
A generous yield
LWI’s shares yield a generous 4.5%, though that required a significant dip into reserves in 2020 owing to a 43% fall in dividends received. But growth from a lower base has resumed. LWI’s dividends have grown at a compound rate of 7.1% since 1990 but are likely to be flat until they are again covered by income. That lack of growth and the recency of the revival in performance are reflected in the shares trading at a discount of 7% to net asset value (NAV).
The UK market is showing early signs of recovering from a long period of underperformance as the domestic economy recovers, entrepreneurialism flourishes and the disdain of global investors lessens. LWI, with its flexibility, experienced management team, high yield and attractive discount is almost the perfect trust to profit from that revival.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Could your family be at risk of an unexpected tax bill? How to keep your loved ones in the loop
Many families are out of the loop when it comes to planning the financial aspects of both retirement and inheritance
-
Rightmove: Glut of homes for sale in southern England drives asking price drop
Asking prices are 0.1% lower than a year ago, according to the property website, driven by challenges in affordability-stretched London and the south
-
Small UK industrial stocks are hidden gems
Opinion Ed Wielechowski of the Odyssean Investment Trust highlights three of his favourite British small-cap industrial stocks
-
Aurora Innovation is running on empty – is it overvalued?
Aurora Innovation, a maker of self-driving trucks, may have promised far more than it can deliver
-
'Ride the recovery in emerging markets': Gustavo Medeiros of Ashmore Group tells MoneyWeek
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?
Changing consumer tastes are rocking the alcohol industry, but the best players are adapting their strategies. Buy them while their shares are still cheap
-
A strange calm in credit
Corporate bond markets remain remarkably relaxed, with yields that offer little compensation for risks
-
'The City's big bet on green finance fails to pay out'
Opinion Insurers and banks are backing away from “green finance”, and there is not much sign of the green boom we were promised. That’s a problem for the City
-
Why is English football thriving – and can it last?
What has gone so right for English football? The national team has found its feet; the Premier League is swimming in money and profits are soaring