It was a positive six months for UK investors overall, and despite worries about global events unsettling markets, stronger corporate results and improving confidence towards the end of the period helped share prices move higher.
In terms of performance for the first half of the year, the NAV total return was 6.3%, representing modest outperformance against our benchmark, which returned 6%. The share price total return was slightly better at 8.7%, as the discount at which the shares trade narrowed over the period.
Looking at the main performance drivers, it was a strong period for takeovers. Our holding in Schroders, the UK asset manager, was bid for during the period, as was the energy distribution services business DCC. Both share prices performed very strongly in the first half of the year as a result.
Some of our overseas holdings also performed robustly. Our holding in Texas Instruments, the semiconductor manufacturer, benefited from strong demand linked to the expansion of US data centres. Engie, the French energy and utilities company, also performed well, supported by higher underlying energy prices and the positive market reaction to its acquisition of UK Power Networks.
Turning to the detractors, closer to home our holding in Dunelm unfortunately issued a profit warning. A lacklustre end market drove softer demand for household goods and home furnishing products. Michael Page, the recruitment company, was affected by a weak recruitment market and concerns around the potential impact of artificial intelligence on its business. However, the shares have started to recover since the period end.
Imperial Brands was another detractor. Trading updates during the period were somewhat mixed, including the loss of market share in some of its key global markets.
Moving on to portfolio changes, we added two new holdings during the period. The first was Bodycote, the specialist engineering company, which proved fortuitous as it was subsequently bid for after the period end. We also initiated a position in Carlsberg, the international beer and soft drinks manufacturer, where we see opportunities for volume recovery across its beer portfolio, particularly in emerging markets, alongside growth in soft drinks following the acquisition of Britvic in the UK.
In terms of additions to existing holdings, we increased our position in RELX, the data and information services business. The share price had been weak over the previous 12 months due to concerns about how artificial intelligence might disrupt the business. We believe many of those fears are unfounded and that the share price weakness was overstated, presenting an attractive opportunity to increase our holding in what we consider a high-quality company for the long term.
We also added to our holding in BP. We believe the company’s renewed focus on its core strengths as an integrated energy business, combined with greater attention to capital efficiency and investment discipline, should help generate stronger shareholder returns in the years ahead.
In terms of sales, we exited our position in Mondi, the paper and packaging company. The business continues to face challenging end markets, both from a volume and pricing perspective, given overcapacity in the European market. This has weighed on the company’s balance sheet and cash flow. We were concerned about the sustainability of the dividend, and following our sale the company subsequently reduced its dividend.
We also sold Mony Group, which owns MoneySuperMarket. While the share price has faced pressure from concerns around artificial intelligence, this was one of the businesses where we were least certain about the long-term impact of AI and believed it could face challenges in the future. As a result, we exited the holding.
Looking ahead, there continue to be uncertainties, including heightened geopolitical tensions, renewed escalation in the Middle East and the possibility of rising inflation. Closer to home, we are mindful of the new Prime Minister and Chancellor and await further details of their budget plans. Government borrowing remains elevated, and investors will be watching carefully to see what the new government can realistically deliver through its spending commitments.
That said, UK economic growth in the first half of the year was more resilient than expected, although far from booming. We will continue to monitor inflation in the second half of the year, as well as any impact from the budget on consumer and business confidence.
Corporate earnings have remained strong throughout the year and continue to be encouraging during the interim results season. Private sector finances are generally in good health, with companies maintaining robust balance sheets and consumers, at an aggregate level, also remaining relatively healthy.
Despite the positive performance of the UK equity market over recent years, valuations remain attractive both relative to overseas markets and compared with their own historical averages.
Thank you.