UK equities produced a total return of 4.4% in May as measured by the FTSE All Share Index. Sterling weakened with its trade weighted index down 2.2% on the narrowing opinion polls ahead of the general election. As a result, large, international companies outperformed and the FTSE 100 Index produced a total return of 4.9%. In contrast, the more domestically focussed FTSE Mid 250 Index of medium-sized companies produced a total return of 2.2%.
The best performing sector was mobile telecoms where the Trust’s large holding in Vodafone reported results that were well received by investors. The pharmaceutical sector was also a notable outperformer. City of London has stakes in GlaxoSmithKline and AstraZeneca but is under represented relative to the market average. The mining sector, where the Trust is also underweight, was a significant under performer with commodity prices under pressure.
During the month, the holding in the student accommodation REIT, GCP Student Living, was sold on a premium to its net asset value and after strong share price performance. The proceeds were partly reinvested in the IPO of PRS REIT which specialises in private sector, rented, residential accommodation.
The result of the general election has added to the uncertain outlook. But the UK consumer proved to be resilient after the Brexit referendum and monetary policy is likely to remain stimulative. City of London’s portfolio is predominantly invested in large, global companies which are benefiting from economic growth around the world. The dividend yield from UK equities remains attractive relative to the main alternatives.
IPO - Initial public offering or stock market launch is a type of public offering in which shares of a company usually are sold to institutional investors that in turn, sell to the general public, on a securities exchange, for the first time.