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.
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 Special Situations fund delivered a positive return of +3.9% in August. The portfolio benefitted from its overweight allocation to consumer services and its underweight positioning to consumer goods, healthcare and utilities. For stock selection, consumer services names all performed strongly on the back of positive vaccine data and expectation that business and consumer behaviours would start the long process of returning to normal. At a stock level, within this sector both SSP Group and Gym Group were notable contributors as they recovered some of their weak performance experienced YTD. Outside of these names, positive performance was driven by robotic automation business, Blue Prism, which is benefitting from an increased awareness of its product solutions. Cairn Energy also performed well, as it announced the sale of a key development asset which creates balance sheet flexibility and de-risks the investment case, in our view.