The UK equity market produced a total return in June of 1.5%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies outperformed with a total return of 1.7%. The FTSE 250 Index of medium-sized companies, which is more domestically focussed, produced a total return of 0.6%. Despite the unwinding of the lockdown, the travel & leisure sector was a notable under performer. It has been slower to emerge from the lockdown than other parts of the economy with pubs and restaurants not opening until July and social distancing is likely to have an adverse impact on profitability. City of London is under represented in travel & leisure relative to the market average.

The water and electricity utilities had a good reporting season in May and June with dividends in line with market expectations. A new holding was bought for City of London in Pennon, which is the water utility covering Devon and Cornwall. It has recently sold its Viridor waste business which has given it options for capital returns and acquisitions. City of London holding in Sainsbury was sold with it disappointingly not having paid a final dividend. It was effectively replaced by the purchase in May of Tesco which is in a stronger competitive position in the UK food retail market and is paying its dividend.

Governments and central banks in the UK, US and Europe are engaged in unprecedented fiscal and monetary stimulus to counter the effects of the lockdowns and social distancing. Some parts of the UK economy are recovering strongly following the sharp fall in March and April. In our view, those companies that are able to pay growing dividends are attractive for investors given low bond yields and bank deposit rates.

Glossary

Fiscal stimulus: Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank.

Monetary stimulus: policies of a central bank, aimed at influencing the level of inflation and growth in an economy.

Bond yield: The level of income on a security, typically expressed as a percentage rate. Note, lower bond yields mean higher prices and vice versa.