Ark Review of the Month
Global equity markets diverged again in the first month of the year, with developed market equities underperformed and emerging market posted positive returns in general. S&P 500 decreased 1% and due to unusual trading activities by retail investors, market volatility has increased significantly during the month. FTSE All-Share was down 0.8% and the MSCI Europe ex-UK Index was down 1.1%. MSCI Asia ex-Japan Index which increased 4.1%, continued to be the top riser of the month. MSCI Emerging Markets Index also outperformed the rest of the market. It increased 3.1%, with the largest contributors being the UAE, Egypt and China.
With regard to fixed income investments, government bonds saw their price tumble. The price of US 10-year Treasuries fell by 1% and the price of UK Gilt fell by 1.7%. corporate bonds, prices of investment grade corporate bonds fell by 1%, while high yield bonds price being relatively stable during the month.
Government bonds yield as of 1 February:
UK Gilt 10 Year @0.32%
US Treasury 10 Year @1.08%
German Bund 10 Year @-0.52%
Last week, the International Monetary Fund (IMF) updated its World Economic Outlook report, raising its global GDP forecast to -3.5% for 2020 and 5.5% for 2021. It estimated that UK GDP has decreased 10% in 2020, and will grow 4.5% and 5.0% in 2021 and 2022 respectively.
IHS Markit has recently released January purchasing managers’ index for UK service sector, down to 39.5 from 49.4 in December. The number was only 70% of the same period last year. The economists expect UK economy to regain its pre-crisis peak in early 2022.
In 2020, the FTSE Indices have not performed as well as people expected. Large and mid-cap stocks indices, FTSE 100 and FTSE 250, dropped 8.5% and 11.6% respectively for the year. However, the FTSE AIM All-Share index which represents performance of the Alternative Investment Market increased 21.8% overall and was among the top performing global indices. FTSE AIM has a low weighting of the oil and gas sector, avoiding the negative impact of the continued decline in energy stocks over the past year. On the other hand, companies in e-commerce, technology and healthcare sectors that have benefited from the ‘new normal’ make up a larger share of AIM.
This year and beyond, FTSE 100 may start to see the turn of fortune. For the past few decades, traditional retail, energy and finance companies have taken a large proportion of the UK market. There are only a few growth stocks in the FTSE 100, but this situation is about to change. 2021 IPO pipeline is filled with high-tech and IT companies, including takeaway software Deliveroo, cyber security firm Darktrace, online payment website Checkout.com and online greeting card retailer Moonpig. Market analysts expect these IPOs to drive the overall performance of the index and encourage more technology companies to float. This may bring the FTSE back into global investors’ attention and create a new virtuous circle.
Should you have any queries, please feel free to contact your usual advisor or our investor relations team. Follow our twitter @WealthArk to receive products and services update each week.
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.
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.