Equities traded sideways in June. The yield curve continued to flatten, especially in the immediate aftermath of this month’s meeting of the Federal Reserve. Beneath the surface both defensive and growth stocks traded much better as investors fretted over the impact of the Delta Covid variant. The variant, which first originated in India, is now the dominant strain in many countries including the UK. While there is little sign that Delta causes more serious illness, it is clearly more transmissible and has brought into the question the speed of re-openings. The fund returned -1.3% versus the MSCI Europe Index that delivered +1.5%.

Despite the flattening of the yield curve, we think it is premature to anticipate the end of the cycle. Fiscal and monetary policy remain extremely supportive and much of the world has still to fully open-up. In those countries where vaccinations, and therefore re-opening, are furthest advanced, economies are robust. US house price growth accelerated at its fastest pace in over 30 years for the second month in a row with strong demand and a shortage of supply leading to prices increasing 14.6% year on year. In the UK, the June Nationwide house price index rose 13.4%. In both countries ‘survey’ measures of economic activity are strong across the board.

For the first time in many years the political consensus is very much in favour of fiscal stimulus. The political wrangling over President Biden’s infrastructure bill continues but it is highly unlikely that the US will fall short in stimulating the economy. In Europe, the German finance minister, Olaf Scholz, dismissed suggestions that German and EU fiscal rules should be tightened. Strong economic growth, stimulative policy, and low real interest rates continue to fuel debate over the inflation outlook. Substantially tighter monetary policy remains the biggest risk for asset markets but looks unlikely in the short-term. After a period of consolidation, we expect equities to move higher in the second half.

Roche gained as the unexpected US approval for Biogen’s Aduhelm drug for the treatment of Alzheimer’s increased interest in the potential for Roche’s Gantenerumab product. The two drugs have the same mechanism of action and the upcoming results of Gantenerumab’s Phase 3 trial should provide further insight. The market opportunity is significant as Alzheimer’s patients are woefully underserved by current drug treatments. Rexel delivered a first-half trading update that indicated same day sales growth of 19% year on year. Admittedly this was against depressed pandemic activity, but nonetheless demonstrates the strength of the group’s proposition. The company now expects full year sales of growth of 12-15% versus original expectations of 5-7%. Norcros, the fund’s largest holding, is another company that has had a good crisis. It released full-year results that were in-line with recently upgraded guidance but indicated that the current year had started strongly. The shares have had a good run but continue to trade on an undemanding multiple. A net cash balance sheet leaves scope for further upside to earnings from acquisitions. Capgemini gained as technology stocks were back in favour.

There were no significant disappointments. The fund’s financial stocks generally underperformed as bonds rallied and the yield curve flattened.

Trading activity was limited.

Equities traded sideways in June. The yield curve continued to flatten, especially in the immediate aftermath of this month’s meeting of the Federal Reserve. Beneath the surface both defensive and growth stocks traded much better as investors fretted over the impact of the Delta Covid variant. The variant, which first originated in India, is now the dominant strain in many countries including the UK. While there is little sign that Delta causes more serious illness, it is clearly more transmissible and has brought into the question the speed of re-openings. The fund returned -1.3% versus the MSCI Europe Index that delivered +1.5%.

Despite the flattening of the yield curve, we think it is premature to anticipate the end of the cycle. Fiscal and monetary policy remain extremely supportive and much of the world has still to fully open-up. In those countries where vaccinations, and therefore re-opening, are furthest advanced, economies are robust. US house price growth accelerated at its fastest pace in over 30 years for the second month in a row with strong demand and a shortage of supply leading to prices increasing 14.6% year on year. In the UK, the June Nationwide house price index rose 13.4%. In both countries ‘survey’ measures of economic activity are strong across the board.

For the first time in many years the political consensus is very much in favour of fiscal stimulus. The political wrangling over President Biden’s infrastructure bill continues but it is highly unlikely that the US will fall short in stimulating the economy. In Europe, the German finance minister, Olaf Scholz, dismissed suggestions that German and EU fiscal rules should be tightened. Strong economic growth, stimulative policy, and low real interest rates continue to fuel debate over the inflation outlook. Substantially tighter monetary policy remains the biggest risk for asset markets but looks unlikely in the short-term. After a period of consolidation, we expect equities to move higher in the second half.

Roche gained as the unexpected US approval for Biogen’s Aduhelm drug for the treatment of Alzheimer’s increased interest in the potential for Roche’s Gantenerumab product. The two drugs have the same mechanism of action and the upcoming results of Gantenerumab’s Phase 3 trial should provide further insight. The market opportunity is significant as Alzheimer’s patients are woefully underserved by current drug treatments. Rexel delivered a first-half trading update that indicated same day sales growth of 19% year on year. Admittedly this was against depressed pandemic activity, but nonetheless demonstrates the strength of the group’s proposition. The company now expects full year sales of growth of 12-15% versus original expectations of 5-7%. Norcros, the fund’s largest holding, is another company that has had a good crisis. It released full-year results that were in-line with recently upgraded guidance but indicated that the current year had started strongly. The shares have had a good run but continue to trade on an undemanding multiple. A net cash balance sheet leaves scope for further upside to earnings from acquisitions. Capgemini gained as technology stocks were back in favour.

There were no significant disappointments. The fund’s financial stocks generally underperformed as bonds rallied and the yield curve flattened.

Trading activity was limited.