Ark Review of the Month
In the fourth quarter of 2021, rising corporate earnings in developed markets drove a continued rally in equities, providing equity investors with a third consecutive year of strong positive returns. In the US, Biden signed the Infrastructure Investment and Jobs Act, a long-awaited $1.2 trillion bipartisan infrastructure bill, pushing the S&P 500 Index up by 11.0%. It was followed by the MSCI Europe ex-UK Index and the FTSE All-Share Index, increasing by 7.0% and 4.2% respectively. Global growth stock prices rose by 8.2%, while value stock prices were up by 7.4%.
Fixed income products performed relatively flat amid inflationary pressures and policy adjustments by central banks. In Q4, global sovereign bond prices fell by 0.7% while investment-grade corporate bond prices fell by 0.5%.
Government bonds yield as of 31 December:
UK Gilt 10 Year @0.97%
US Treasury 10 Year @1.51%
German Bund 10 Year @-0.18%
UK's Consumer Prices Index (CPI) rose by 5.1% in the 12 months to November 2021, which is the highest in ten years. The leading factors were the continued increase in transportation costs and fuel prices. Considering the inflation and other economic data, the Bank of England's Monetary Policy Committee voted in December to raise the base rate to 0.25% from the historical low of 0.1%. It was the first rate increase in the UK in the past three years. The central bank expects inflation to peak at around 6% in April 2022 before starting to fall back again.
Employment data released by the UK Office for National Statistics show that the labour market is currently holding up well. The average unemployment rate for the three months from August to October 2021 was 4.2%, down from 4.6% in the previous three months. This data reveals a positive message that could also be one of the reasons why the Bank of England decided to push up the interest rate, the economy is still growing steadily.
Diversification has always been a vital part of Ark's investment strategy. We are holding low correlated assets with diversified sources of income in each investment portfolio we manage, in order to maximise returns for our investors while controlling risk.
In 2020, Ark started to invest in the newly launched Odey Special Situations Fund by Odey Asset Management, a leading investment management firm in the UK. Unlike our other holdings, this hedge fund employs an "event-driven investing" philosophy that focuses on generating asymmetric returns from corporate acquisitions and financing events. Combining arbitrage strategy with equity longs is not a common strategy in the market, the fund manager needs to look for signs of mergers and acquisitions before they happen from news and local trading volumes, and normally have to make investment decisions quickly after key information releases. Just 25 months after its launch, the fund has reached around $100 million (£75 million) in size and has generated an 88.8% total return for sterling investors, twice the rise in the MSCI World Index over the same period.
For the 12 months ending 30 November 2021, the Odey Special Situation Fund returned 40%, ranking first in its asset class. The fund has been added to several portfolios under Ark's management over the past year and has generated substantial returns for Ark's investors.
As always, our Investor Relations team would be more than happy to help you with any queries.
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 guaranteed 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.
Issued by Ark Investment Management Ltd which is authorised and regulated by the Financial Conduct Authority.
© Ark Investment Management Ltd. Registered in England & Wales with the company number 09281759.