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Larger UK firms shine in Q2

Smaller UK companies generally performed better than their medium-sized and larger counterparts during June although, over the second quarter of 2014 as a whole, blue-chip businesses outstripped their smaller peers. The benchmark FTSE 100 index fell 1.5% during June but rose 2.2% over the second quarter of 2014. For its part, the FTSE 250 index fell 1.8% during the month and 3.4% over the quarter while the FTSE SmallCap index fell 0.9% during June and 0.7% over the quarter.

The UK’s IPO market remained active during June. The AA motoring organisation listed on the London Stock Exchange (LSE) during the month while budget hotel company Easyhotel listed on the Alternative Investment Market. Private healthcare company Spire Healthcare also revealed its intention to list on the LSE. Meanwhile, in response to strong demand for shares in TSB, Lloyds Banking Group increased the amount of stock for sale from 25% to 35%, with shares in TSB initially priced at 260p each.

According to research undertaken by Capita Asset Services, private investors remain net buyers of UK equities, with a total share of 11.3%. Although net additions to holdings have moderated, investors are nonetheless refocusing their portfolios towards riskier stocks. Shares in cyclical companies – which tend to be relatively sensitive to the economic backdrop – are in demand, whereas investors are showing a tendency to avoid shares in more defensive companies.

Elsewhere, according to a survey by manufacturers’ organisation EEF, UK manufacturers are becoming increasingly sanguine about the outlook for growth over the next quarter. More of the survey’s respondents believe output growth will increase during the next three months than at any time since 2007.

House prices rose at an annualised rate of 9.9% during April while the average price for a house in the UK rose to £260,000. Prices rose across the UK as a whole, although the increase in London prices was particularly marked. House prices in the capital rose by 18.7%, whereas the national average increase – excluding London and the south-east of England – was 6.3%.

Demand for UK equity funds dropped sharply during May compared with April, according to recent data from the Investment Management Association. UK Smaller Companies and UK All Companies were the second and third-worst-selling IMA sectors during May, surpassed only by North American Smaller Companies. In comparison, UK Equity Income was the second-best-selling sector overall.