November was a positive month for investment returns in the UK equity market, with the FTSE All-Share Index rising by almost 2.5%. Part of this rally in share prices was almost certainly due to a reversal of the previous month, when the index fell by 1.6% during volatile conditions.
Additionally, stock markets rarely like uncertainty, so the clean sweep in the elections by the Republican Party of the House, Senate and Presidency brings greater clarity to US politics. Moreover, the re-election of President Trump is seen as more business-friendly, although the possible future introduction of trade tariffs would have an adverse impact.
In the UK, the economic statistics released during the month were not particularly favourable. Economic activity in September was poor, with GDP estimated to have shrunk by 0.1%, leading to growth in the third quarter of only 0.1%. The latest rate of consumer price inflation was reported as 2.3%, which was also seen as disappointing and a little higher than expected. Nonetheless, the Bank of England’s Monetary Policy Committee voted to cut the base rate by 0.25% to 4.75%.
The main cause of divergence between our performance and the index was the continued share price fall of Vistry, the housebuilder, which was down almost 28% during November. This was caused by an update examining the cost issue that the company had first identified in October. Although clearly a serious issue as the costs had been underestimated by £165m, it is difficult to rationalise why this would knock more than £2bn from the company’s market capitalisation. It is said that markets are driven by greed and fear – this seems a clear example of fear leading to an exaggerated share-price fall.
Turning to greed, it is also difficult to rationalise why a banana (costing 30 cents) and duct-taped to a wall should sell for US$6.24m, but the artwork ‘The Comedian’ did. This highly speculative auction result provides a real contrast to our approach to investing. We look for, and invest in, companies that can produce sales, profits, cash and dividends to their owners, which, in turn, can provide attractive long-term returns to our shareholders.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
Issued by Columbia Threadneedle Management Limited and approved for distribution 31/12/24.
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