The steady march higher for equity markets continued in August despite government bond yields grinding higher. Policy support remains favourable for equity investors, though economic recovery momentum appears to have stalled and COVID-19 cases continue to intermittently spike and decline around the world. From a bottom-up perspective, encouragingly we’ve started to see a gradual stream of companies begin to recommence dividend payments, which suggests some improvement in underlying business confidence.
The FTSE All Share Index reported a gain of +2.4%, which reflected relative underperformance against global indices. UK equity valuations are undemanding, though Brexit worries persist and market bias towards value sectors has not been helpful year-to-date (YTD). For sector performance, consumer services, industrials and technology led returns. Utilities, healthcare and energy industries were all weak in the period.
The L&G UK Equity Income fund delivered a positive return of +4.1% in August. Stock selection and sector allocation made positive contributions to performance. The portfolio benefitted from its overweight allocation to consumer services and its underweight positioning to healthcare and utilities. For stock selection, our holdings within industrials and consumer goods added most value. At a stock level, a number of our UK-domestic focused consumer companies performed strongly, including Dixons Carphone, SSP Group, GoCo, Next and Whitbread. GVC and John Wood Group also performed well. On the flipside, TP ICAP and Brewin Dolphin were the most notable underperformers within our active exposure. For trading activity, we have maintained our leisure exposure, but switched our position of Carnival into EasyJet.