March 2018
In common with other major equity markets around the world, UK share prices declined during March, dampened by concerns over the possibility of trade wars triggered by the US, and by the prospect of intensifying inflationary pressures and tightening monetary policy.
- The FTSE 100 Index’s yield ended March at 4.1%
- Underlying UK dividend growth was strong in 2017
- Aviva decided against cancelling its preference shares
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In common with other major equity markets around the world, UK share prices declined during March, dampened by concerns over the possibility of trade wars triggered by the US, and by the prospect of intensifying inflationary pressures and tightening monetary policy.
“The worst-selling IA sector during February was UK Equity Income”
The FTSE 100 Index dropped by 2.4% during March, while the FTSE 250 Index fell by 1.2%. Insurer and FTSE 100 Index constituent company Aviva came under the spotlight during the month following its announcement that it intended to cancel preference shares in a bid to reduce debt, citing “high coupons that are not tax-deductible and will not count as regulatory capital from 2026”. In the face of widespread criticism for its strategy, Aviva subsequently decided to abandon its plan.
The yield on the FTSE 100 Index rose from 4.02% to 4.1% in March, while the FTSE 250 Index’s yield climbed from 2.76% to 2.8%. In comparison, the yield on the benchmark UK government bond fell from 1.59% to 1.39% during the month. Over the first quarter of 2018, the best-performing FTSE industry sectors were automobiles & parts, technology hardware, industrial metals & mining, industrial transport, and chemicals. The worst-performing sectors were software & computer services, tobacco, food producers, and telecoms.
According to Janus Henderson’s Global Dividend Index, global dividends rose at a headline rate of 7.7% during 2017 to reach US$1.25 trillion, and records were broken in 11 of the 41 countries included in the index. In the UK, however, headline growth in dividends was only 3% over the year as a whole, reflecting the sharp decline in the value of sterling following the Brexit referendum. Nevertheless, underlying growth in UK dividends was strong at 10%, underpinned by a recovery in payouts from mining companies. Three UK companies appeared in the top 20 of the world’s largest dividend payers: Royal Dutch Shell took the top spot; HSBC Holdings was seventh, and BP ranked in 14th place.
Equities experienced their first overall outflows since January 2017 during February, suffering outflows of £235 million over the month. According to the Investment Association (IA), the mainstream UK All Companies sector remained firmly out of favour, but the worst-selling IA sector during February was UK Equity Income, which experienced outflows of £306 million. In contrast, investors’ appetite for Global Equity Income funds improved, generating inflows of £20 million.
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