UK equities fare worst amid Covid fallout

From January 1 to June 30 the top four worst performing sectors were the IA UK Equity Income, UK All Companies, UK Smaller Companies and UK Equity and Bond Income sectors.

Investors with cash in these sectors lost an average of 17 per cent over the six months to June.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The UK Equity Income sector led the worst performers as companies rushed to cut dividends.

“The rate of dividend cuts in the UK is unprecedented. Along with dividend cuts the weakness in sterling through the crisis has also helped the UK market to underperform as a weak pound helps improve the performance of international equities.”

Hundreds of UK firms have culled or slashed their dividend payouts to shareholders in an attempt to form a cash buffer against the economic impact of the pandemic, leaving income investors with a £32bn shortfall.

Exacerbating the trend, banks and insurers were forced to stop payouts by the Bank of England while the government ruled companies making use of any government schemes were not allowed to pay dividends to shareholders.

Mr Lowcock added: “The weakness in sterling through the crisis has also helped the UK market underperform as a weak pound helps improve the performance of international equities.”

Ben Yearsley, investment consultant at Fairview Investing, said: “Is it the UK’s obsession with dividends that has caused the recent market lag? Or maybe it’s Brexit still at play? 

“Whatever it is, the UK offers some of the best value in global markets, though Japan still tops the value list.”

Not all doom and gloom

The IA Technology and Telecoms saw the biggest gains over the first six months of the year, returning 20 per cent since January 1. 

Technology companies have benefited as the lockdown forced consumers to turn to digital services while working from home and communicating with family and friends.

But fixed income funds were also a ray of light over the first half of 2020, with UK Index Linked Gilts, UK Gilts and Global Bonds making it into the top five performing sectors of the first half of 2020.

Mr Yearsley said: “What is good to see is the benefit of portfolio diversification with three of the top five sectors fixed interest. 

“With the historic cuts in interest rates and the resumption of quantitative easing, the UK Gilt sector has risen over 10 per cent this year.”

The gains for technology and by extension the US, which is heavily exposed to tech stocks, saw US growth funds dominate the performance charts from January to July.

Morgan Stanley’s US Growth fund was the best performing fund, returning 64 per cent over the six months, while Baillie Gifford American, Baillie Gifford Long Term Global Growth, Morgan Stanley US Advantage and Baillie Gifford Global Discovery also made the top 10.

Gold was also a strong performer as its price rose against the falling equities, meaning Ruffer Gold and MFM Junior Gold also appeared amongst the best performers.

Portfolios exposed to UK stocks, oil and Latin American companies were the worst hit over the first half of the year.

LF Equity Income, formerly Neil Woodford’s flagship fund, lost 42.4 per cent, beaten only by Aberdeen Standard’s UK Recovery fund which saw a 42.48 per cent drop.

Energy funds, such as Schroder Global Energy and Guinness Global Energy, and Latin American portfolios - which are heavily exposed to the oil market - also appear in the top 10 worst performers of the six months to July.

imogen.tew@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.