UK equities produced a total return of 1.4% in August as measured by the FTSE All Share Index. The FTSE 100 Index, which is predominantly composed of large, international companies, rose by 1.6% benefiting from the weakness in sterling on a trade weighted basis. The more domestically focussed FTSE Mid 250 Index lagged with a rise of only 0.4%.
The best performing sector was mining where the leading companies reported strong results. Additions have been made over the last two months to City of London’s holdings in Rio Tinto, BHP Billiton and Anglo American, but the Trust still has below average exposure to the sector. Diageo, the leading beverage company which is the fourth largest holding in City of London’s portfolio, was also a notable outperformer after solid full year results.
Provident Financial, the non-standard lender, had a very disappointing profits warning, mainly due to the new business model which it has adopted in its home collected credit division. It is unlikely that Provident Financial will pay a dividend for at least the next year and therefore City of London’s holding was sold with the proceeds used to make additions to the holdings in HSBC and Lloyds Banking on dividend yields of above 5%.
The growth being experienced from the main economies of the world, including the UK, is positive for corporate profits. The dividend yield from UK equities remains attractive relative to the main alternatives.
Dividend Yield - a dividend expressed as a percentage of a current share price.