Ark Review of the Month
Across all asset classes, the global sovereign bond market was the top riser in July, with overall prices increasing by 1.5%. UK Gilt prices and US Treasury prices increased by 2.9% and 1.4% respectively. Global investment grade corporate bond prices increased by 1.3%.
Equity markets were divergent, led by developed European and US markets. S&P 500 Index increased 2.4% over the month, followed by the MSCI Europe ex-UK Index, up 1.8%. FTSE All-Share Index increased 0.5%. Emerging market equities lagged relatively, with MSCI Emerging Markets Index down 6.7% and MSCI Asia ex-Japan Index down 7.4%.
Government bonds yield as of 2 August:
UK Gilt 10 Year @0.52%
US Treasury 10 Year @1.17%
German Bund 10 Year @-0.49%
Economists still expect overall GDP growth in the UK to reach around 7% in 2021, but there are signs that the recovery has lost some momentum recently. In contrast to monthly GDP growth of over 2% in both March and April, the economy saw only 0.8% month-on-month growth in May due to a global shortage of microchips and disruptions to domestic car production limiting manufacturing sector output. As of May 2021, the UK economy is around 3% lower in size than in February 2020.
There has also been positive news, latest figures show that the labour market continues to improve, with the employment rate rising. The number of payroll employees increased by 356,000 to 28.9 million in June 2021. Job vacancies are also above the pre-pandemic level. In addition, economists expect UK households to have accumulated approximately £200 billion of additional savings during the pandemic, which, if spent, would further support regional economic growth.
One of Ark’s holdings Paragon Banking Group PLC published its trading update based upon the business performance in July. Year to date new business volumes exceeded their equivalent levels in 2020, supported by a strong housing market that generated new advances of £485 million in the Mortgages division and a further £311 million in Commercial Lending. The buy-to-let pipeline had grown by 39.9% from its June 2020 level to £911million. The group has also announced an interim dividend of 7.2p per share.
Against the backdrop of high global inflation, we are paying more attention to industries and stocks with consistently growing dividend yields. The FTSE 100 is currently expected to yield 3.7% in 2021. Statistics from investment platform AJ Bell show that nine companies are set to deliver dividend yields of more than 7% this year, and most of them are from the financial and energy sectors. Energy companies, including oil, gas and mining companies, have revenues linked to energy prices, which is a key component of the inflation index. Thus they normally perform well when inflation rises and generate substantial returns for investors.
As always, our Investor Relations team would be more than happy to help you with any queries. You could also follow our Twitter @WealthArk to receive products and services updates 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.