Fund Manager July 2021 Commentary – City of London

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.

¹ Source: FTSE Russell as at 30 July 2021

Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

The policies of a central bank aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.

The level of income on a security, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.