UK investors may feel there are more questions than answers as we hurtle towards Brexit and detailed negotiations on a deal with Europe. That won’t change in the short-term regardless of the outcome of today’s General Election and the identity of the next government. That suggests, in our opinion, that buying market experience into your portfolio could be a sensible move, and few fund managers have more hard-earned nous than James Henderson.

With namesake fund management firm Janus Henderson since 1983, he has traded through recessions, stock market crashes, the dotcom bubble, the financial crisis and more during his 27 years running the Lowland Investment Company (LWI). Yet despite this evident wealth of experience Henderson is also wise enough to realise that he needs to be ‘challenged by new ideas.’ That is why he invited Laura Foll to become co-manager alongside him, in November 2016, having been his capable assistant for the previous four years.

Lowland is a £428m net assets investment trust that scans the entire UK equities space in the hunt for shares with good solid income dynamics. But decent capital growth is also important, which feeds into greater future dividend scope. Lowland has an impressive track record for returning returns to shareholders through its own dividends. It has raised the payout every year in the past 20 baring 2009, in the teeth of the financial crisis.

That equated to a 45p per share dividend for the last full year to 30 September 2016, up nearly 10% on the previous year’s 41p return. Similar growth would imply a 3.2% yield this year at the current £15.31 share price. Dividends are also paid quarterly, convenient for investors reliant on regular income.

Income and capital ingredients

The trust currently holds stakes in 129 companies ranging from the very largest (Royal Dutch Shell (RDSB) is its single biggest shareholding) to the relatively small. Henderson has been building a small stake in £110m gentlemen’s outfitter Moss Bros (MOSB) recently, the trust’s first small retailer ‘in some time,’ he admits.

The aim is to invest in a mixture of large, medium-sized and smaller companies. ‘I’m after diversity,’ he says. There are times when everything can seem to be going right in a particular investment space, he points out, but these periods are inevitably followed by the opposite, so spreading funds across the investment spectrum works for Lowland.

Yet the trust’s balance has been tipped towards larger companies more recently. Half of Lowland’s 10 biggest holdings now are FTSE 100 constituents, three in the FTSE 250 with just a single small cap and one (Irish ferries and shipping group Irish Continental (ICGC)) unindexed. ‘We typically have about a third of funds in the FTSE 100, but it is bigger now,’ says Henderson. Normally, the fund manager explains, a greater part of the trust would be in small caps, but ‘people are nervous and so are paying premiums for certainty,’ he says, explaining why valuation ratings of some companies can appear very full right now.

‘I do fret,’ says Henderson about Brexit negotiations and how they could impact UK plc and individual company share prices. He believes that in the short-term life is going to be very difficult for many companies.

Fortune may favour the brave

Spotting opportunities when others only feel fear is part of the trick to trading successfully through perceived lean spells. Henderson mentions Rolls Royce (RR.), the aero-engineer previously caught up in a previous corruption scandal. ‘Rolls is getting there,’ says Henderson, ‘focusing on where money can, and cannot be made in the long-term,’ he believes. The fund manager has been buying stock this year and it is paying off, shares in the company having rallied 32% so far in 2017.

Other areas Lowland’s manager sees opportunity include insurance and industrials, ‘our two big bets,’ he states. The former is evident in the trust’s top 10 stakes, where Phoenix (PHNX), Prudential (PRU) and Hiscox (HSX) are all prominent features.

Joining Rolls Royce on the industrials side of the bet is chemicals supplier Scapa (SCPA:AIM), which Henderson reveals has been ‘a really good share for us.’ The fund manager reveals that Lowland initially bought shares at about 20p to 25p, which implies trades made as far back as 2010.

Past asbestos issues, struggles in the automotive industry and pension deficit woes have apparently been managed well, sparking a return to the dividend list in 2014. The stock now changes hands at 511.5p, so no wonder Lowland is now starting to take some of those impressive profits by selling stock. ‘It has been one of our most successful investment of the past few years,’ Henderson says.

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