In August, the UK equity market produced a negative total return of 3.6%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies produced a negative return of 4.1% with investors fearing economic slowdown. The yield on the 10 year gilt fell further and ended the month at 0.5%, indicating investors’ pessimism about future growth prospects.

The FTSE 250 Index of medium-sized companies was a notable relative outperformer with a negative return of 1.1%. There were takeover bids among medium-sized companies for Entertainment One and also for Greene King, the pub group, which is a long-standing holding in City of London’s portfolio. Greene King, which gained 45% over the month, is being bought by CK Asset of Hong Kong.

In general, sectors that are not particularly sensitive to economic activity, such as pharmaceuticals and utilities, outperformed. On the other hand, the cyclical, mining sector was a notable underperformer as were banks and insurers which are adversely affected by falling bond yields. Some additions were made to City of London’s holdings in Barclays and Lloyds Banking which appeared attractive based on their dividend yields and other measures of shareholder value.

There is considerable uncertainty in UK politics with a general election likely. The UK stock market has exposure through the companies which are listed on it to a mixture of the domestic as well as the global economy. UK equities continue to offer an attractive dividend yield compared with the main alternatives.