During December, optimism continued about the effect that the vaccines should have in supressing Covid-19 and the eventual return to more normal social and economic activity. In addition, the UK agreed a trade deal with the European Union towards the end of the month. The UK equity market, as measured by the FTSE All Share Index, produced a total return of 3.9%. The FTSE 250 Index of medium-sized companies, which has a more domestic focus, returned 6.1%, significantly outperforming the FTSE 100 Index of the largest companies which returned 3.5%.

In general, sectors exposed to economic activity did well while more defensive areas underperformed. The mining sector was a notable outperformer buoyed by strong Chinese demand for commodities, such as iron ore. City of London benefited through its holdings in Rio Tinto, BHP and Anglo American. In contrast, the large holding in Unilever, the multinational consumer goods group which had held up well for most of the year, gave back some ground in December. There has been a similar pattern of share price performance for AstraZeneca, which was a notable underperformer in December, despite its Covid-19 vaccine having been approved.

During December, complete sales were made of City of London’s holdings in Spirax-Sarco Engineering and Halma, both of which have performed exceptionally over the years but, in our view, their share price valuations now seemed expensive. The proceeds were switched into other holdings in the portfolio, such as Wm Morrison, the food retailer, and Direct Line Insurance.

The first quarter of 2021 is likely to be a difficult one for the UK economy with the resurgence of the Covid-19 virus and the third national lockdown. Looking further ahead, it is possible to be much more optimistic as the vaccines are rolled out and the economy reopens. Given the amount of monetary and fiscal stimulus and the high level of personal savings, growth could surprise to the upside in the second half of the year, which would provide a supportive background for company profits and dividends.


Commodity: A physical good such as oil, gold or wheat. The sale and purchase of commodities in financial markets is usually carried out through futures contracts.