After the sharp sell-off at the end of 2018, equities rebounded in January. The FTSE 100 index of the largest companies produced a total return of 3.6% but the FTSE 250 Index of medium-sized companies outperformed with a return of 7.1%. The FTSE All Share, which includes large, medium and small companies, returned 4.2%.
A key factor behind the recovery globally in equities was the indication from the Federal Reserve, the US central bank, of a much more restrained stance towards future interest rate increases and quantitative tightening. As investors’ confidence improved, in the UK equity market, housebuilders were among the best performers and City of London’s stakes in Persimmon and Taylor Wimpey produced double digit percentage gains. In contrast, the worst performing sector was mobile telecommunications with fears growing about the sustainability of Vodafone’s dividend. City of London has a holding in Vodafone but is under-represented compared with the FTSE All Share Index. Vodafone owns a spread of attractive telecommunications assets and could benefit from its proposed acquisition of some European cable networks from Liberty Global.
No new holdings were bought in January for City of London but additions were made to a range of existing holdings, such as Carnival, Prudential and Reckitt Benckiser. In utilities, the holding in Centrica was significantly reduced given tough regulatory and competitive conditions.
Looking forward, there are concerns about slowing global economic growth and the outcome of the Brexit negotiations is still uncertain. However, the dividend yield from UK equities remains attractive relative to the main alternatives.