The UK equity market moved sideways in June with a total return of 0.2%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies returned 0.4% outperforming the FTSE 250 Index of medium-sized companies which produced a negative return of 1.2%. The FTSE 100 was helped by its greater international bias, with the US dollar strengthening over the month against sterling.
Rising economic activity as a result of the reopening of the UK and other economies helped the oil price (Brent) which rose from $69 barrels per day (bbl) to $74/bbl over the month. A notable outperformer was Royal Dutch Shell, which was City of London’s seventh largest holding (as at 30.06.21) but where the portfolio is underrepresented relative to the market average. With continuing uncertainty over the lifting of restrictions on visiting foreign countries, travel & leisure was the worst performing sector and City of London has significantly less exposure than the market average to this sector.
Wm Morrison has been held in City of London’s portfolio since 2019. The company has a differentiated strategy compared with competitors, with greater sourcing from UK farms and high freehold ownership of its supermarkets. The company has now attracted takeover interest from three private equity groups. In our view, the steady cash flow from UK supermarkets has been undervalued by the stock market and Tesco is also held in City of London’s portfolio.
The outlook for economic growth remains positive, with the reopening of the economy and the accommodative monetary and fiscal policies being pursued in the UK and overseas. The UK equity market continues to offer an attractive yield relative to the main alternatives.
References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Janus Henderson Investors, one of its affiliated advisor, or its employees, may have a position mentioned in the securities mentioned in the report.