In April, the UK equity market produced a total return of 2.7%, as measured by the FTSE All Share Index. The more domestically biased FTSE 250 Index of medium-sized companies outperformed with a total return of 4.2%. The FTSE 100 Index of the largest companies, which is more international, produced a total return of 2.3%. Since the start of 2019, the FTSE All Share has returned 12.0%. This progress in equities follows weakness in the second half of 2018 and is probably best explained by the change to a more accommodative interest rate policy, announced in January by the Federal Reserve, the US central bank.
A notably outperforming sector in April was life insurance, which typically responds well to rising equity markets and City of London benefited with its large positions in Prudential and St James’s Place. In contrast, tobacco was the weakest sector over the month but British American Tobacco, where City of London has a holding in line with the market average, offers an attractive dividend yield in our opinion.
A new holding was bought in Mondi, the vertically integrated paper and packaging company. Although its industry is cyclical, Mondi should be a long-term winner given its low cost of production. Some profits were taken after exceptionally strong share price performances in Spirax-Sarco Engineering and Halma but core positions were retained in both companies.
It is still unclear as to how the Brexit process will end. However, the UK economy has grown steadily over the last year and slightly ahead of the European average. The UK stock market has exposure through the companies which are listed on it to a mixture of the domestic as well as the global economy. The dividend yield on UK equities remains attractive relative to the main alternatives.