The UK equity market produced a negative total return of 1.8% in March as measured by the FTSE All Share Index. Other major equity markets were weak with the US central bank increasing its policy rate range by 25 basis points to 1.5%-1.75%. In addition, heightened rhetoric on trade tariffs was poor for sentiment. In the UK, inflation was reported for February as being slightly below expectations. Gilt yields fell and sterling rose by 1.5% on a trade weighted basis which helped the more domestic mid-cap FTSE 250 Index outperform (with a negative return of 0.9%) relative to the more international FTSE 100 Index (which had a negative return of 2.0%.)
Against a background of firmer bond prices, defensive sectors did well over the month with notable outperformance from utilities where City of London has above average exposure. On the other hand, general retailers underperformed, including Kingfisher, which had a disappointing trading update, and where City of London has a stake. In the related area of retail property, Hammerson, where City of London also has a stake, received a takeover approach from Klepierre of France. Another of the Trust’s holdings, NEX, the financial services group, also received a takeover approach during the month.
The level of takeover activity across the UK equity market is one indicator of value. Another is the dividend yield which remains attractive relative to the main alternatives. City of London has announced its intention to increase its dividend by 6.0% for its current financial year (to 30th June 2018.)
Basis points – used to describe the percentage change in the value or rate of a financial instrument.
Gilt yield – is the interest rate on a government bond (Gilt) based on its buying price. (It is calculated by dividing the coupon paid by the price.)
Trade weight - A way of evaluating the strength of a country's currency by weighting its value according to the relative amount of trade carried out with each of its trading partners.