The UK equity market produced a negative return of 2.5% in June as measured by the FTSE All Share Index. Political uncertainty after the Conservative Party lost its overall majority and deteriorating consumer confidence led to the more domestic FTSE Mid 250 Index of medium-sized companies underperforming with a negative return of 2.9%. The more international FTSE 100 Index of the largest companies produced a negative return of 2.4%.
The worst performing sector was utilities which was adversely affected by the Labour Party’s threat of renationalisation and by the lead up to the next water sector regulatory review. Utilities, where City of London is overweight, has been a good sector for both income and capital returns over many years. A reduction in the Trust’s exposure to the water sector was made. The life insurance sector, where City of London has above average exposure, was a notable outperformer, benefiting from the rise in gilt yields.
A new holding was purchased in Rotork, the leading manufacturer of actuators, which control valves for process industries, including oil and gas, where orders are improving. Rotork appeared to offer relatively good value given the quality of its operations and after share price underperformance compared with the average of other capital goods companies. The Trust’s holding in Berendsen was sold after a takeover approach led to a sharp rise in its share price.
The dividend yield from the UK equity market remains attractive relative to the main alternatives. Growth across all the main economies of the world should be supportive for rising company profits and dividends.