World stock markets made progress in May as countries started to come out of lockdowns and with the large scale monetary and fiscal stimulus being applied. The UK equity market produced a total return of 3.4%, as measured by the FTSE All Share Index. The FTSE 250 Index of medium-sized companies slightly outperformed, with a total return of 3.7%, compared with the FTSE 100 Index of large companies which returned 3.3%.

A notably strong performing sector was mobile telecommunications where Vodafone reported good full year results and paid a maintained 12 month dividend. Additions were made to City of London’s stake in Vodafone, financed by the sale of BT which has suspended its dividend. The banking sector was notably weak on fears of loan losses and negative interest rates and also the lack of dividends from the sector. City of London’s holding in Royal Bank of Scotland was sold but positions have been retained in HSBC, Lloyds and Barclays for medium-term recovery. A new holding was bought in Tesco, the UK’s leading food retailer, which we believe may generate additional cash not reflected in its share price valuation.

The scale of the recovery of the UK stock market from its low point in March has been impressive. Investors have been anticipating better economic conditions as the lock downs of countries end. With exceptionally low interest rates, companies that can offer a combination of dividend yield and growth should be well supported.