Despite the UK stock market remaining heavily out of favour and a constitutional crisis following the Supreme Court’s ruling that prime minister Boris Johnson’s suspension of parliament was unlawful, the country was in ‘pretty good shape’, according to Curtis.
The manager of the £1.6 billion UK equity income trust cited inflation at 2%, wage growth of 4% and ‘fairly full employment’, which he said would see the country through whatever Brexit result happens.
‘Whatever outcome we get, even a Brexit without a deal, although there may be initial disruption we would weather the storm,’ he said.
The UK market has been out of favour since the referendum in 2016 and while Curtis said valuations were ‘very depressed’ they did not yet factoring in a no-deal scenario.
‘There are structural challenges in some sectors, like retail, that means they are depressed for other reasons but there will be a big bounce [post-Brexit],’ he said.
Although Curtis is not counting on the bounce happening as soon as the 31 October deadline hits, as he said there may be a ‘knee-jerk’ reaction if the UK crashes out without a deal, nevertheless he is optimistic of a stock market recovery.
Political risk remains, however, with the country poised to go to the polls.
Curtis said a ‘general election is imminent’ and a Labour government would be a ‘negative for some sectors’, particular utilities which opposition leader Jeremy Corbyn has threatened to nationalise although Curtis queried the legality of such a move.
By contrast, he believed a Conservative election win would take some of the sting out of Brexit, whether there was a Brexit deal or not.
‘The market would react well to the Jeremy Corbyn risk being gone,’ said Curtis.
Although Curtis typically favours large, international FTSE 100 stocks, which are not as sensitive to the whims of Brexit negotiations, he saw value in ‘very cheap’ housebuilders.
‘Look at the economic conditions: full employment, low interest rates, wage growth, and a generation renting or living at home and keen to buy their own homes,’ he said.
He said the Conservatives were keen to make people homeowners as they are more likely to become Conservative voters once they do.
On top of this, planning permission has loosened but the price of land has not rocketed meaning ‘housebuilders are earning a good margin’, said Curtis.
Although Curtis agreed housebuilders were ‘cyclical and will turn down a bit’ if the economy wobbles, he was adding to Persimmon and said London-focused Berkeley would ‘probably get a Brexit bounce’.
Curtis was speaking to journalists after City of London published its full-year results.
In a tough year for equity markets to the end of June, the trust delivered a net asset value (NAV) total return of 2.7%, which despite being less than half of the 6.3% NAV return it managed the year before was above the 0.6% gain in the FTSE All-Share index.
The weak pound boosted returns from overseas stocks such as Nestle, Merck, Verizon, Novartis and Microsoft. The biggest UK gainer was Greggs after the bakery chain's profits were boosted by the success of its vegan roll.
Exposure to real estate investment trusts was a weakness with Supermarket Income (SUPR) and RDI (RDI) both sold.
Nevertheless, City continued to secure its place as an Association of Investment Companies’ ‘dividend hero’ by increasing its income payout for the 53rd consecutive year, pushing it up 5.1%.
Dividend income from the trust’s investments kept its total return in positive territory this year, as the NAV fell by 1.9%.
Curtis made a number of well-timed moves to ensure the dividend income remained supported, including the sale of British Gas owner Centrica (CNA) and specialist materials manufacturer Low & Bonar (LWB), both of which were sold ahead of dividend cuts.
He also reduced Vodafone (VOD) before it slashed its dividend but retained a position saying it had ‘some attractive assets, such as its position as the second largest operator in Germany, and it should benefit from the growth in mobile data usage going forward’.
Over 10 years City has delivered a 176% total return to shareholders, ahead of the 120% FTSE All-Share gain and its 173% sector average.
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