BY CRAIG RIPPE, HEAD OF UK EQUITIES
ECONOMIC & MARKET OVERVIEW
Politics hit the headlines once again in April, with UK Prime Minister Theresa May calling a snap election for 8 June.
May’s Conservative Party has been miles ahead in polling for some time – with a comfortable lead over a Labour Party viewed by many as in disarray under the leadership of Jeremy Corbyn. Should the Conservatives win comfortably, as current polling suggests, the stronger mandate may be helpful through the two-year Brexit negotiations with European leaders.
The snap election announcement resulted in a strong spike for sterling, with the pound rising to a six-month high against the US dollar. The rise for sterling had an impact on the large number of UK-listed stocks with strong dollar-based earnings, dragging the large-cap index lower during April. The mid-cap area of the market was more resilient, hitting a new all-time high over the period.
At economic level, UK GDP growth came in at 0.3% for the first quarter, far below the Monetary Policy Committee’s 0.6% target. Retail sales declined by 1.4% quarter-on-quarter, as higher inflation impacted on consumer spending. With consumption a large percentage of the UK economy, the slowdown is concerning. The FTSE All-Share Index posted a slightly negative return, as did the CF Canlife UK Equity Income Fund, although we were ahead of the benchmark.
Late in April we participated in the IPO of trucking group Eddie Stobart Logistics PLC, which listed on the Alternative Investments Market. The IPO, which came three years after it was spun-off from the larger Stobart Group in 2014, valued Eddie Stobart at more than £570m. We also trimmed our holding in Centrica, as energy supply companies continued to be impacted by political rhetoric.
Equities continue to be an attractive destination for investors, particularly relative to bonds. In terms of valuation, the UK has the highest dividend yield of any developed market and remains relatively defensive. Whilst the Fund is sitting on slightly higher cash levels than usual, we remain cautiously optimistic of the prospects for UK equities for the remainder of 2017.
The value of investments may fall as well as rise and investors may not get back the amount invested.
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Source: FTSE International Limited ("FTSE") © FTSE 2017. "FTSE®" is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.
CLI00785 Expiry on 22 August 2017