UK equity funds move back into favour

UK share prices rose and equity yields fell in June in the face of ongoing political uncertainty. The unfolding story of Brexit entered a new chapter during the month as the Conservative Party focused on electing their new leader, who will supersede Theresa May as Prime Minister as the UK moves closer to the extended Brexit deadline of 31 October. 

  • The FTSE 100 Index yielded 4.34% at the end of June
  • In comparison, the benchmark UK gilt yielded 0.79%
  • Despite this, demand for fixed income funds outpaced equities


UK share prices rose and equity yields fell in June in the face of ongoing political uncertainty. The unfolding story of Brexit entered a new chapter during the month as the Conservative Party focused on electing their new leader, who will supersede Theresa May as Prime Minister as the UK moves closer to the extended Brexit deadline of 31 October. 

“Demand for UK equity funds staged a pronounced recovery”

During June, the FTSE 100 Index rose by 3.7%, while the FTSE 250 Index climbed by 2.6%. The yield on the FTSE 100 Index declined during June from 4.56% to 4.34%, having started 2019 at 4.68%, while the FTSE 250 Index’s yield fell from 3.25% to 3.17% after beginning the year at 3.39%. During June, the yield on the benchmark UK government bond fell from 0.87% to 0.79%, having begun 2019 at 1.26%. 

Over the first six months of 2019, the best-performing FTSE sectors were leisure goods, industrial metals & mining, software & computer services, and electronic & electrical equipment. The worst-performing sectors included fixed-line and mobile telecommunications, oil equipment & services, and automobiles & parts.

In a trading update, hotel operator Whitbread pledged to return to shareholders more of the proceeds of its sale of Costa coffee to Coca-Cola, “subject to prevailing market conditions”. The company intends to return up to £2 billion to shareholders through a tender offer that will represent the second stage in a three-stage return of capital, following a share buyback earlier in the year. 

Although fixed income remained the most popular asset class in May with net retail sales of £771 million, demand for UK equity funds staged a pronounced recovery during the month, according to the Investment Association (IA), achieving net retail sales of £532 million. Notwithstanding this reversal of fortune, however, general demand for equity funds remained relatively weak. Despite this, both the UK Equity Income sector and the mainstream UK All Companies sector appeared in the top five best-selling IA sectors; the UK All Companies sector posted positive net retail inflows for the first time in more than a year, and demand for funds in the UK Equity Income sector also showed a sharp improvement. Investors’ appetite for funds in the UK Smaller Companies sector worsened, however, and the sector experienced net retail outflows of almost £50 million during the month. 


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