June 2018
Although escalating trade tensions dominated global investor sentiment in June, the UK also had to contend with Brexit-related issues against a backdrop of criticism over the Government’s lack of progress. During June, the FTSE 100 Index declined by 0.5%, while the FTSE 250 Index fell by 0.1%, and equity yields continued to outstrip yields on other asset classes.
- The UK housing market continued to soften
- The Government cut its stake in RBS
- Demand for UK equity income funds fell sharply
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Although escalating trade tensions dominated global investor sentiment in June, the UK also had to contend with Brexit-related issues against a backdrop of criticism over the Government’s lack of progress. During June, the FTSE 100 Index declined by 0.5% and the FTSE 250 Index fell by 0.1%.
“Equity yields remain well ahead of other asset classes”
The yield on the FTSE 100 Index edged down from 3.85% to 3.84% over June as a whole, while the FTSE 250 Index’s yield crept up from 2.67% to 2.71%. In comparison, the yield on the benchmark UK government bond rose from 1.28% to 1.31%. The prospective 12-month yield on shares has risen to 3.9% (excluding special dividends), according to Link Asset Services’ most recent Dividend Monitor, and equity yields remain well ahead of other asset classes. Looking ahead, total UK dividends are expected to rise by 1.8% over 2018 to reach a record high of £96.3 billion. According to the Investment Association (IA), demand for funds in the UK Equity Income sector plummeted during May, and the sector suffered net retail outflows of £299 million over the month.
Estate agent and lettings agency Countrywide issued its second profit warning of 2018 and revealed a plan to halve its debts by raising cash from its shareholders. The UK housing market continued to slow down during May, according to mortgage lender Halifax. House prices rose at an annualised rate of 1.9% in May, compared with an increase of 2.2% in April. Nevertheless, despite a recent softening in mortgage approvals, Halifax also highlighted “signs of stabilisation” in newly agreed sales and new buyer enquiries. Looking ahead, continuing strength in the labour market and rising growth in average earnings are likely to provide some support for house prices.
The Government reduced its stake in Royal Bank of Scotland (RBS) from 70.1% to 62.4% during June following the sale of 925 million shares. Hopes are rising that, in time, the bank will be able to reinstate its dividend payout; RBS has not paid a dividend on its ordinary shares since 2008.
Over the first six months of the year, the best-performing FTSE industry sectors were automobiles and parts, technology hardware & equipment, food & drug retailers, and industrial metals & mining. At the other end of the spectrum, the worst-performing sectors were tobacco, mobile telecommunications, software & computer services, and fixed-line telecommunications.
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