August was a relatively quiet period for UK equities, with the FTSE All-Share Index finishing approximately flat, having made strong gains so far this year. Share price moves were often driven by companies' quarterly results announcements. For example, medical device company Smith & Nephew reported disappointing second-quarter organic growth and downgraded its full-year revenue guidance (forecasts). As a result, its shares were among the weaker performers during the month. Among the best-performing holdings in August were two companies that reported positive trading updates, which led to earnings upgrades. These were electrical components producer Volex and retailer Halfords. Shares in UK North Sea oil and gas producer Serica Energy also performed well following a rise in the UK gas price. Among the largest detractors from performance was ferry company Irish Continental, which has a Board-recommended takeover offer, with a shareholder vote scheduled to take place in September. It is currently unclear whether the vote will pass the 75% threshold needed for approval. During the month we took profits in several financial holdings following strong share price performance. These included reducing positions in M&G, Standard Life, Legal & General, Aberdeen and Lloyds. We also sold the holding in commercial property owner Segro following the recommended takeover offer from US-listed Prologis. These sales meant that the gearing level on the Company was reduced during August, although we also switched some sales proceeds to add to holdings in soft drink manufacturer AG Barr, specialty chemicals producer Elementis, and commercial flooring producer James Halstead. Following the summer, we think the key focus areas for the UK market in the coming months are likely to include the Budget in late October, as well as interest rate decisions from the Bank of England (BoE), given that UK inflation remains stubbornly above the BoE's 2% target. While we think these factors, as well as the ongoing conflict in the Middle East, have the potential to create volatility in the market, we believe the portfolio's aggregate valuation remained modest at around 13x its 12-month historic price-to-earnings (P/E) ratio as at the end of August.
