The UK equity market made a small gain in July with a total return of 0.5%, as measured by the FTSE All Share Index. The FTSE 250 Index of medium-sized companies outperformed, with a total return of 2.7%.1 There were further takeover approaches for medium-sized companies with bids for Ultra Electronics and GCP Student Living. City of London does not hold these two stocks but has a stake in Wm Morrison Supermarkets, which has also received a bid.

July marked the start of the reporting season of half- year results for companies with December financial year-ends. In general, companies beat expectations, benefiting from the reopening of economies as vaccination programmes took effect. A notable highlight from City of London’s portfolio was Rio Tinto, which has been benefiting from strong demand from China for iron ore and announced a large special dividend. In contrast, Reckitt, where City of London also has a stake, disappointed with higher input costs adversely affecting profits.

There were no new holdings purchased or complete sales made for City of London during July. Additions were made in the financial sectors to Direct Line Insurance, IG Group and Legal & General. A reduction was made to the holding in Tate & Lyle, which announced the sale of 50% of its primary products business to focus on its ingredients business, with a faster growth rate, but lower dividend likely.

The UK and overseas economies should continue to recover so long as the vaccines remain effective against Covid-19. Continuing stimulatory monetary and fiscal policies are likely to help economic growth but at the risk of causing further inflation. UK equities appear to be good value given the large number of takeovers in recent months from overseas companies and private equity firms. The dividend yield of UK equities remains attractive relative to the main alternatives.

1 Source: FTSE Russell as at 30 July 2021