Job Curtis, Fund Manager for The City of London Investment Trust, provides his monthly commentary on how the Trust performed in June, which sectors and stocks contributed to its performance and his thoughts on the wider economic outlook.

The UK equity market moved sideways in June with a total return of 0.2%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies returned 0.4% outperforming the FTSE 250 Index of medium-sized companies which produced a negative return of 1.2%. The FTSE 100 was helped by its greater international bias, with the US dollar strengthening over the month against sterling.

Rising economic activity as a result of the reopening of the UK and other economies helped the oil price (Brent) which rose from $69 barrels per day (bbl) to $74/bbl over the month. A notable outperformer was Royal Dutch Shell, which was City of London’s seventh largest holding (as at 30.06.21) but where the portfolio is underrepresented relative to the market average. With continuing uncertainty over the lifting of restrictions on visiting foreign countries, travel & leisure was the worst performing sector and City of London has significantly less exposure than the market average to this sector.

Wm Morrison has been held in City of London’s portfolio since 2019. The company has a differentiated strategy compared with competitors, with greater sourcing from UK farms and high freehold ownership of its supermarkets. The company has now attracted takeover interest from three private equity groups. In our view, the steady cash flow from UK supermarkets has been undervalued by the stock market and Tesco is also held in City of London’s portfolio.

The outlook for economic growth remains positive, with the reopening of the economy and the accommodative monetary and fiscal policies being pursued in the UK and overseas. The UK equity market continues to offer an attractive yield relative to the main alternatives.

Fiscal stimulus Expand

Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

Monetary stimulus Expand

The policies of a central bank aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money. See also fiscal policy.

Undervalued Expand

Undervalued is a financial term referring to a security or other type of investment that is selling in the market for a price presumed to be below the investment’s true intrinsic value.

Yield Expand

The level of income on a security, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.

References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Janus Henderson Investors, one of its affiliated advisor, or its employees, may have a position mentioned in the securities mentioned in the report.