The UK equity market delivered a positive return in August, further continuing its upward trajectory year-to-date. Positive earnings delivery, guidance upgrades and analyst revisions have been a key feature of the latest corporate reporting season, supporting the strong market performance. That said, commentary from management teams point to continued headwinds from supply disruption, rising freight and distribution costs, and increasing labour shortages. This continues to be a key part of our engagement with companies. Aside from earnings, M&A activity is continuing, with high profile movement in food and industrial sectors highlighting once again the relative valuation merits of UK assets. On Covid-19, final restrictions in the UK economy were lifted in August, although this was accompanied by more cautious rhetoric from government officials as cases of the delta variant rise. Despite this, the high vaccination rate appears to be keeping hospitalisations stable.
The L&G UK Equity Income Fund outperformed against its benchmark in August. Stock selection accounted for the outperformance, driven by our names in Industrials and Consumer Discretionary. Sector allocation was broadly neutral. By stock, top positive contributions came from our holdings in Meggitt, Dixons Carphone and Taylor Wimpey. The largest negative contributions to relative returns came from our holdings Phoenix Group and Tate & Lyle.
In terms of portfolio activity, we entered a new position in AstraZeneca, with the recent underperformance of its share price providing an attractive buying opportunity. We also bought a position in HSBC, with a desire to increase banking exposure ahead of BofE relaxations on dividend controls.