BY NIGEL KENNETT, SENIOR FUND MANAGER
UK equities were volatile in June as investors grappled to come to terms with the shock general election result, which saw Theresa May’s Conservative Party lose their overall majority in the House of Commons. However, in the immediate aftermath of the vote, equities were largely unmoved, as the market took the result in its stride. We believe this is a very healthy sign for the FTSE, which is now close to record highs having been able to consistently overcome negative newsflow.
There appears to be a new political attitude brewing in the UK, characterised by a backlash against austerity and a focus on wealth re-distribution. Given this ‘new normal’ we trimmed the CF Canlife UK Equity Fund’s holdings in three water utility companies prior to the election, given the political risk surrounding nationalisation. We also locked in some profits by trimming some of our top performers, including Bellway, Marshalls and SSP, recycling these profits into more ‘value’ positions as bond yields rose quite sharply during the month.
This included adding to our holding in Barclays, which should benefit from higher interest rates. In addition, the company is trading on a supportive price-to-book valuation of 0.7x. We also added to Glencore, which is also trading on an attractive valuation and should profit from the stabilisation in dollar commodity prices. These were more tactical additions in what is proving to be an uncertain investment environment, however we did also add to our favoured defensive growth areas, including Assura – the GP surgery owner – and British American Tobacco.
Looking forward, the FTSE 100 is currently yielding an attractive 4.1%, which we believe is more than adequate compensation for long-term investors, who are willing to be patient through a potentially uncertain period. However, as mentioned above, we do expect more tactical positions in the short-term and that a prudently diversified portfolio will be well-positioned to outperform
The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. The content of this article is not intended as investment advice.
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Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
CLI00846 Expiry on 15 October 2017