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 Special Situations Trust outperformed its benchmark in August. Sector allocation was positive due to our overweight in Industrials underweight in Basic Materials. Stock selection also made a positive contribution, driven by our names in Consumer Discretionary and Energy. At the individual stock level, top positive contributions came from our holdings in Cairn Energy, Future and Biffa. The largest negative contributions to relative returns came from Darktrace and Coca-Cola HBC.
In terms of portfolio activity, we sold our position in UDG Healthcare following the acquisition by TDR Capital. We also exited our position in Coats Group following its strong share price recovery.