In December, the UK equity market produced a total return of 3.3%, as measured by the FTSE All Share Index. In the wake of the better than expected results for the Conservatives in the general election, the more domestically focussed FTSE 250 Index of medium-sized companies outperformed with a total return of 5.3%. The FTSE 100 Index of the largest companies, which has a greater proportion of sales from overseas, produced a total return of 2.8%.

Among City of London’s best performing holdings over the month were the water utilities, United Utilities and Severn Trent, where the risk of nationalisation was removed with the defeat of the Labour party. Housing related stocks also did well, with particularly strong performances in City of London’s portfolio from housebuilder Taylor Wimpey and brick maker Ibstock. In contrast, travel group TUI had a poor month after announcing a dividend cut and the portfolio’s holding was sold. Additions were made to the holdings in Royal Bank of Scotland and National Grid, the utility, given the reduction in domestic political uncertainty.

UK monetary conditions and government fiscal policy should prove to be helpful for economic growth. UK equities have the potential to recover some performance relative to overseas equities and continue to offer an attractive dividend yield relative to the main alternatives.


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. 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.