In the six month period ended 30 June 2016, Threadneedle UK Select’s net asset value total return was 1.4%, compared with the 4.3 % total return from the FTSE All-Share Index, the benchmark against which the Investment Manager’s performance is measured. Earnings per share for the half year amounted to 4.16p (30 June 2015: 8.21p). The Board has declared an interim dividend of 1.95p per share (30 June 2015: 1.90p).
They say that underperformance against the FTSE All-Share was driven by sector total allocation, where positive effects from an underweight in financials were offset by detraction from an overweight in consumer discretionary and an underweight in energy. Financials and consumer discretionary saw sharp falls towards the end of the period as investors worried about the prospects for both sectors following the Brexit vote. By contrast, energy stocks rallied on firming commodity prices. However, they feel that much of the gains in mining companies are due to the stocks having previously been oversold rather than any significant shift in fundamentals. For this reason, they remain comfortable with our zero weighting in mining stocks.
In contrast to sector allocation, stock selection was particularly supportive in consumer discretionary and industrials. Strong stock-level performers included Royal Dutch Shell, which not only benefited from the rally in the oil price but also rose sharply after the Brexit vote, as sterling weakness should boost the value of its overseas earnings. Consumer-goods giant Unilever and tobacco business Imperial Brands also rallied as investors moved towards non-cyclical stocks. With the Brexit vote heightening concerns over the financial sector, zero weightings in Lloyds, Aviva and Royal Bank of Scotland added to relative returns.
Laggards included Crest Nicholson and Derwent London, as doubts emerged over the prospects for the UK construction industry in the wake of the Brexit vote. The uncertainty surrounding the financial sector led to falls in the share prices of Legal & General and St. James’s Place. Amid stronger oil prices, a zero weighting in BP detracted from relative returns.
UKT : Threadneedle UK Select caught out by mining rally