London stocks rallied over July and the first half of August, after that the slide was resumed.
Once again, most of the pain was felt lower down the market with the mid and smaller capitalisation companies particularly weak. There is logic to this as the sales and earnings of so many of the major companies in the FTSE 100 arise in US dollars. The FTSE 250 (the next 250 ‘mid-size’ companies outside the top 100) tend to be more representative of ‘UK PLC’. But, viewed from the perspective of an American investor, look at the pricing of so many UK assets now… we must expect to see more take-overs of UK companies if this persists.
After a comparatively calm first six months of 2022, the Balanced Equity Income portfolio was shaken by the dramatic re-pricing in fixed interest markets and the knock-on effect this had had on infrastructure and property investments and, of course, the fixed interest holdings in the portfolio. The areas that are supposed to provide the ‘balance’ did the opposite. To be clear about this, we are not concerned with the long-term prospects and dividend/interest paying capabilities of these investments, just that in the short-term they have been, rather dramatically, ‘re-priced’. Here is the overall disposition at the end of the quarter, see chart, right.
The top holdings in the portfolio are little changed from the end of June. Relative to its size in the portfolio, the big negative has been GSK. We sold the holding in Haleon that we received in the spin-off and added to GSK with the proceeds, considering that ‘new GSK’ will be in a position to provide a growing dividend. The long-standing holdings in Diageo and Unilever provided some of the few positive returns as did Sage. We have added to Howden Joinery along with Lloyds and Reckitt Benckiser and, in the energy saving and infrastructure area, to Harmony and SDCL. Gone from the portfolio are the remaining holdings in Compass and Rentokil, good companies but not ones that are going to provide the level of dividends (and dividend growth) that we seek. We have also sold Smith & Nephew after one disappointing update too many. They have consistently underperformed global peers (Stryker Corp, J&J et al) and after successive uninspiring management changes, we feel that the business is not the leader that it once was.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.