The FTSE 100 rose to its highest level in three months at the end of April, led by a rally in supermarket and oil stocks.
The London index finished the month up 6.42% or 453 points at 7,509.30. It marked the highest level since the end of January and the best monthly performance since July 2013.
Lee Wild, head of equity strategy at Interactive Investor, said April is statistically the second-best month of the year for UK equities but these monthly returns will be hard to beat this year.
“After making a record high in January, the FTSE 100 had lost over 900 points before the end of March amid concerns around US trade tariffs, rising bond yields, the Facebook data scandal and tech sector valuations,” he said.
“A combination of successful international diplomacy, a weaker pound, rising oil prices and supermarket sector M&A restored investors’ faith in equities during April."
Supermarkets and energy shares gain
Elsewhere, Micro Focus International PLC (LON:MCRO) shares jumped 27% last month after reports that activist investor, Elliott Management Corp. has built up a position in the enterprise software firm.
Whitbread plc (LON:WTB) increased 16% after unveiling plans to split off Costa Coffee from the rest of the group following pressure from activist investors.
Weak pound to continue to support FTSE 100
Wild said a weaker pound had supported the FTSE’s rebound since the index’s constituents make money in the US, which inflates profits when converted back into sterling.
“There seems little chance of a recovery in the pound near term, given poor GDP data, falling inflation, and now a period of political instability caused by the resignation of home secretary Amber Rudd,” he said.
“An increase in UK interest rates this month now seems highly unlikely, putting further pressure on sterling, which could at least underpin the FTSE 100 now less than 300 points from an all-time high.”
Best performing funds in energy sector
In terms of funds, energy was the best performing sector thanks to the rebound in oil prices.
The Schroder ISF Global Energy fund, which invests mainly in large-cap oil and gas companies, delivered the best returns at 15.4% followed by Blackrock GF World Energy at 14.4% and VT Cape Wrath Focus at 13.9%.
Adrian Lowcock, investment director, Architas said: “After volatility came back with a bang in January and February investors have had to deal with the threat of trade wars and now sanctions against Russia. However, in April there was largely a period of calm.
“UK markets were boosted as more investors decided they were beginning to believe the country was at an attractive discount to international markets with global investor sentiment at an all-time low on the country.”
In Investment Association sectors, UK Equity Income led the charge last month with a 6.25% return followed closely by UK All Companies at 6.21%. UK Equity and Bond Income had returns of 4.9% and UK Smaller Companies was at 4.8%.
Russian-focused funds among worst performers
Going the other way, UK Index Linked Gilts were the biggest losers with returns falling 2.8% as inflation fell to its lowest level in the year at 2.5% in March. UK Gilts came in second place of worst performers, down 1.2%, followed by Global Emerging Markets Bond, which declined 0.3%.
Global Emerging Markets was the only equity sector to feature in the bottom 10 list, with returns up just 0.9% as US sanctions on Russian dragged on the sector.
“Russian focused funds accounted for eight of the worst performing funds in April with Baring Russia taking top spot as Russia faced a combination of international political pressure as a result of the Salisbury poisoning and sanctions from the US in response to Russia’s supposed meddling in the US election,” said Lockcock.