Henderson High Income Trust plc

The FTSE All-Share Index rose 0.7% as investors balanced encouraging economic news against rising inflation and geopolitical uncertainty. UK economic data was somewhat positive. GDP expanded by 0.4% over the second quarter, which followed decent growth in the first quarter, and showed economic activity in the first half of the year proved more resilient than many had expected. Annual inflation accelerated to 2.9% in July from 2.6% in June, reaching a four-month high as energy costs rose, although the data matched analysts' predictions. Meanwhile, business and consumer confidence improved with the latter reaching the highest level in two years.

The FTSE 100 Index rose 0.2% during the month, underperforming the mid-cap FTSE 250 Index which rose 4.3%. The best-performing sectors included basic materials, technology and industrials, while healthcare, consumer staples and energy sectors lagged.

The equity holdings in British American Tobacco and Imperial Brands were negative for performance. Both shares came under pressure as investors reappraised their expectations for the growth of nicotine pouches and other reduced-risk products (such as vapes). The holding in French utility company Engie also detracted from performance. While the company has recently announced good results, the shares underperformed in August due to French political and regulatory risk, given the forthcoming presidential elections and the country's fiscal position.

Elsewhere, equity holdings in Bodycote and Chesnara contributed to performance. Industrial company Bodycote was subject to two separate bid approaches from private equity groups CVC Capital Partners and Veritas Capital. Shares in Chesnara performed well due to a strong results announcement that came in ahead of expectations, with capital generation rising sharply and the dividend increasing by 6%.

During the month we added to the holding in GSK, given our increased confidence in the outlook for the company's drug pipeline. The shares continued to trade at what we considered a modest price, despite the company's strong positions in several therapeutic areas and improving execution, which we believe could be accelerated under the new CEO. Funding for this came from reducing the holding in Tesco, where strong market share gains in recent years have started to slow.

Global bond yields have been rising (prices falling), driven by surging energy prices pushing inflation higher and fiscal deficits remaining elevated across many developed economies. While this has created volatility in fixed income markets, global economic growth, led by the US, has remained robust.

In the UK, GDP growth has been more resilient than expected, helped by the strength of overall household finances. While inflation is rising again, underlying inflation pressures showed signs of easing once energy prices are excluded. Corporate earnings have also remained robust, with European companies delivering strong profit growth, supported by financials, industrials and energy firms. Against this backdrop, UK equities appear attractive to us relative to history and overseas equity markets. We maintain a balanced approach, owning more resilient businesses as well as cyclical companies that we believe are trading at attractive valuations.