June was a lacklustre month for both equities and bonds. Equities declined in the UK (-2.4%) and Europe (-1.3%) and were flat in other regions and at the global level (FTSE World index). The only exception was the FTSE Asia Pacific ex Japan index which gained 1.5%.
In essence UK equity markets have been a tale of two halves in the year to date. The FTSE 100 has had a total return of 4.7% across the entire period. This was driven by a gain of 3.7% in the first quarter. The second quarter has proven more turbulent and the FTSE 100 gained only 1%.
The FTSE 100 ended the month at 7,337 having finished May at 7,519 and having started 2017 at 7,142.
In the last month the inconclusive election result and the modest strengthening of Sterling compared to the US Dollar both took their toll.
Turning to sector data, the utilities sector was the largest detractor in June, falling by over 8%. More importantly for our UK fund choices, the tobacco sector fell by over 5% over the month. The financial sector was the only area to produce a meaningful positive return and this was just 0.5%. Our UK fund choices were not immune to the decline, but most outperformed the FTSE 100.
It is important to note that in the year to date the consumer goods (14%) and tobacco (11%) sectors have been amongst the best performing sectors. Conversely, oil and gas (-11%) and utilities (-2%) have been the worst performers.
The price of sovereign bonds declined in all the major countries in June following remarks from a number of central bank governors that monetary policy could become tighter. As a result of comments from Bank of England Governor Mark Carney, 10-year gilt yields rose to 1.3% (prices fell). The fall in gilt prices caused the FTSE Actuaries UK Conventional Gilts All Stocks index to finish the month at a loss of 2%.
Taking a longer view the index has lost nearly 1% in the last twelve months. Slowly, but surely, gilt prices are correcting after being artificially inflated by an era of extraordinary monetary policy.
A rather dismal month was rounded out by gold prices falling 3%. This once again underscores the volatility of this asset class, which does not reward investors with any interest or dividend.
The one bright spot was the decline in oil prices, which should help to moderate inflation. Brent crude dropped 5% in the last month in Sterling terms and is down 20% in the year to date.