World equity markets produced strong returns in November with the news of the efficacy of the vaccines from Pfizer, Moderna and AstraZeneca. In the UK, the equity market produced a total return of 12.7%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies returned 12.7%, which was in line with the 12.6% return of the FTSE 250 Index of medium-sized companies.

Hopes of a swifter than expected return to normal economic activity led to a 25% rise in the oil price. The oil & gas sector, which was a poor performer in the first ten months of 2020, returned 31.6% in November. City of London has holdings in Royal Dutch Shell and BP but is under represented relative to the market average. Financial sectors were strong with the life insurance, non- life insurance and banks sectors all returning over 20%. RSA Insurance was bid for by a combination of Intact Financial of Canada and Tryg of Denmark, which to some extent illustrated the cheapness of the UK equity market compared with overseas. More defensive sectors, such as utilities and pharmaceutical, which had held up better in the earlier part of the year, underperformed during the market rally in November.

The holdings in Halma and Spirax-Sarco Engineering, which have been very successful investments for City of London, were sold. Both had rerated to a degree that, in our view, over valued their prospects. A  new investment was made in Cisco Systems, the US maker of network gear that moves information around the internet and corporate networks, where an improvement in demand is expected in 2021.

Companies have continued to return to the dividend list. From City of London’s portfolio, soft drinks maker, Britvic, and Real Estate Investment Trust, British Land, declared dividends having not paid earlier in the year. The combination of the attractive dividend yield of UK equities and more confidence in the dividend paying capacity of companies may lead to positive returns being sustained.