In January, the UK equity market produced a total return of 3.25%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies and the FTSE 250 Index of medium-sized companies both produced returns in line with the FTSE All Share Index. Business confidence surveys and data from the housing market were encouraging pointers for UK economic growth. On the other hand, the emergence of the coronavirus was negative for Chinese and global growth.

For a second month running, housebuilders were notable outperformers. Persimmon and Taylor Wimpey, where City of London has stakes, were respectively best and third best performers in the FTSE 100 Index. Defence contractor BAE Systems, which is also held in the portfolio, was the second best performer. Notable laggards included BT, which is under regulatory and competitive pressure. A small stake is held in the portfolio given the potential for decent returns from building fibre to homes. Carnival, which is also held in the portfolio, had a poor month because the coronavirus is likely to have an adverse effect on demand for cruise holidays. In the medium term, demand for cruises should recover. Significant additions were made to M&G, the fund manager and life assurer, on an attractive combination of dividend yield and growth. This was partly funded by selling Aviva, the composite insurer.
The change in Chancellor of the Exchequer may indicate a more expansionary fiscal policy ahead. UK equities continue to offer an attractive dividend yield relative to the main alternatives.


Yield: The level of income on a security, typically expressed as a percentage rate.

Dividend: A payment made by a company to its shareholders. The amount is variable, and is paid as a portion of the company’s profits.

Fiscal policy: Government policy relating to setting tax rates and spending levels.