Ark Review of the Month
Global equity markets continued to rally in the final quarter of 2020. In terms of regional distribution, top performers were MSCI Emerging Markets Index and MSCI Asia ex-Japan Index, both increased almost 20%, benefiting mainly from the recovery in manufacturing and trading in Asia. UK and EU, which have just reached a historical trade and cooperation agreement, also performed relatively well, FTSE All-Share Index increased 12.6% and MSCI Europe ex-UK Index increased 10.2%. Value stocks that had suffered during the pandemic, such as traditional retail, tourism, energy and finance sectors, all bounced back strongly, while e-commerce and pharmaceutical sectors, the winners earlier in the year, lagged relatively behind.
With regard to fixed income, performance of government bonds was clearly divergent. In the fourth quarter, price of US 10-year Treasury Note fell by 0.8%, while price of UK 10-year Gilt increased by 0.6%. Thanks to the European Central Bank's quantitative easing policies, government bond prices rose significantly in most European countries, led by Italy and Spain. As for corporate bonds, both global investment grade and high yield bonds delivered a strong total return in the fourth quarter. Global investment grade bond increased by 4.3% in price, while global high yield bond price increased by 6.5% overall.
Government bonds yield as of 31 December:
UK Gilt 10 Year @0.20%
US Treasury 10 Year @0.91%
German Bund 10 Year @-0.57%
In the UK, though economic activities were severely restricted by the lockdown, house prices still increased gradually over the quarter. Strong performance of the stock market was mostly due to positive market reactions to two vaccine approvals and the finalisation of the EU–UK Trade and Cooperation Agreement. However, GDP is still below pre-pandemic level and there is still plenty of space for recovery once the vaccine is rolled out. Value of GBP increase 5% during the quarter.
In 2020, Ark’s portfolios have delivered returns above the benchmarks. The benchmark returns we use are the UK Retail Price Index and the IA Mixed Investment Indices. IA stands for the Investment Association, whose member institutions manage £8.5 trillion of assets and the IA Mixed Investment Indices are widely used peer group benchmarks in the UK. Please see below our current portfolios and focus:
Gilt+ Portfolio invests 90% in UK Gilts and 10% in investment grade UK corporate bonds.
UK Fixed-Income Pension Portfolio invests mainly in high quality funds and liquid fixed income assets.
Moderate Risk Portfolio also has a diversified exposure to bonds and bond funds, with a proportion of equity fund investments.
Medium Risk Portfolio has a mix of global equities and fixed income assets.
We wish you and your loved ones a safe and healthy new year. We want to reassure you that our business will continue to offer high standard services as always.
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The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guarantees and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities, or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.
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