Some good news at last for income-strapped investors as UK dividends recovered in the second quarter of this year. Excluding special dividends, which skew the picture, the quarter saw an increase of nearly 44% in distributions from the same period last year.

A note of caution – dividends remain lower than pre-pandemic levels but are catching up more swiftly than was generally forecast at the turn of the year.

The biggest contributor by far to the increase was companies returning to the dividend list after passing payments last year in the face of the COVID crisis.

The better than expected bounce is all the more welcome as the spike in inflation, albeit from an incredibly low base, has an impact on the both company’s costs and individuals’ spending. Much time has been spent on the transitory nature (or not) of the current increase in inflation.

Opinions vary, but the market reaction reflects the current consensus. The US 10-year Treasury yielded was close to 1.9% a few weeks ago up from 0.6% at the turn of the year. At the time of writing, it has fallen below 1.2%. The lower the figure, the less the market is worried about inflation staying elevated and eroding the real value of an investment in Treasury Bills.

We are inclined to the market’s relatively benign view on inflation, whilst looking to build portfolios that can perform with inflation should it prove ‘stickier’ than forecast. Whilst not a fool proof policy, we look for investment in companies that have pricing power and will better be able to pass on increased costs and maintain profitable margins.

The cooling of inflationary concerns has seen growth stocks reverse their underperformance against cyclical recovery plays in the first quarter of the year. This simply justifies our approach of maintaining a balanced approach accessing Fund managers to actively seek out the best opportunities regardless of momentum in any one style of investment.

The one area of Growth investing that has come under pressure is in Chinese Technology companies. Here, the authorities have bared their teeth to rein in certain sectors such as on-line education in order to exert a larger element of central control.

Given the sheer scale of the leading tech companies in China, we tend to have indirect exposure through both Asian and Emerging Markets Funds. Prices had been a little weak ahead of the clampdown and we have spoken with many Fund Managers, canvassing views. The consensus is that these companies will adapt and thrive again.

Geopolitical risk has always been a feature of overseas investment, but it is necessary to provide diversity and access to dynamic companies and economies and remains at the heart of profitable long-term investing.