August was generally a disappointing month for risk assets. The FTSE All World High Dividend Index declined 3.2% (in USD).
European and US economic purchasing managers index data was also below market expectation in August. Poor economic news such as this does not necessarily translate to poor equity market performance. Indeed, together with continued reduction in inflation this might provide more scope for less stringent monetary policies going forwards. The Federal Reserve Bank of Kansas City held their Jackson Hole conference at the end of the month. Central bankers seemed keen to remind the world that monetary policy alone is limited on what it can achieve in terms of generating real economic growth rather simply elevating asset prices.
The Global Equity Income model portfolio declined 2.5%. The best performing stock held during the month was Admiral (+15.2%), the UK insurance company, who announced a rebound in profitability and increases in rates above the rate of inflation. CK Hutchison was the worst performing stock declining 11.6%. The decline in ports revenue and weakness in the Three mobile phone network results more than offset the recovery in pharmacy sales from Watsons and Superdrug. Shares now trade around half of net asset value and continue to provide an attractive dividend yield of over 5%.
The outlook looks similar to that envisaged at the beginning of the year with reduced inflation expectations, liquidity and global growth expectations. In the United States weak economic data suggests elevated recessionary risk, while labour market and consumer confidence remain encouraging.