Macro backdrop

The UK equity market returned 4.4%, helped by favourable corporate results from the first six months of 2022. UK inflation hit a new 40-year high of 9.4% in June, up from 9.1% in May, while the UK economy unexpectedly grew by 0.5% in May, after shrinking 0.2% in April.¹ Within the equity market, the FTSE 250 Index of medium-sized companies outperformed with a total return of 8.3%.²

Trust performance and activity

The Trust produced a total return of 2.9%, underperforming the FTSE All Share Index which returned 4.4%. This underperformance was partly due to the portfolio being predominantly invested in large companies.²

The two biggest stock detractors were the holdings in motor insurers Direct Line and Sabre, where premiums have not kept pace with the rising cost of claims. Notable positive contributors included holdings in Ibstock, the brick maker, and IG Group, the online trading company, which both reported better-than-expected results.³ In terms of activity, we bought a new holding in NatWest, which has been benefiting from rising interest rates and bond yields, and also announced a special dividend.

Outlook/strategy

City of London has a diversified portfolio with positions in sectors that we think are well positioned to cope with current inflationary pressure, such as consumer staples and oil. In addition, it has significant holdings in financial sectors, where rising interest rates and bond yields are typically a helpful tailwind. In general, satisfactory profits and dividends were announced in the recent corporate reporting season while the yields found on UK equities remains attractive relative to the main alternatives.

¹Source: UK inflation rate rises to 40-year high of 10.1% | Financial Times (ft.com) ²Source: Bloomberg asat 31 July 2022 ³Source: NatWest Share Price (LON:NWG) Rallies After Earnings Beat, Special Dividend -Bloombergand Ibstock defies supply chain challenges to build healthy profit | TheBusinessDesk.com Glossary Expand

Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures. The opposite of deflation.

Yield – 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.