Ark Review of the Month
In July, global market sentiment was stimulated by lower inflation in developed markets and a recovery in GDP data, with a clear rebound in investment returns across most regions and asset classes. Global equity markets performed well, with the MSCI Emerging Markets Index rising 6.3% over the month. The US S&P 500 Index rose by 3.2%, the UK FTSE All-Share Index rose by 2.6%, and the MSCI Europe ex-UK Index increased by 1.3%.
The overall performance of fixed-income markets was also positive, with global investment-grade corporate bond prices rising by 1.0% over the month. Global sovereign bond prices increased by 0.7%, with the UK Gilt prices rising by 0.8%. Commodity prices picked up from their decline since the start of the year, with the Bloomberg Commodity Index up 6.3% in July. However, European natural gas prices declined as storage reached a seasonal high.
As of 31 July 2023:
UK 10 Year Gilt Yield 4.31%
US 10 Year Treasury Yield 3.96%
Germany 10 Year Bund Yield 2.349%
The unexpected decrease in the Consumer Price Index (CPI) in June supported the performance of UK Gilts, with the 10-year Gilt yield falling back to 4.3% and prices recovering. The FTSE Index underperformed other developed market equities slightly in July, possibly due to a weaker economic growth outlook. The manufacturing sector, which accounts for around 10% of the UK's economic output, suffered the worst loss of momentum, with the Manufacturing Purchasing Managers' Index falling from 46.5 to 45.0. Nevertheless, the FTSE All-Share Index still posted a positive return of 2.6% for the month. Sterling gained 1.1% against the US dollar in July, benefiting from additional interest rate hikes by the Bank of England relative to other developed market central banks.
According to the Office for National Statistics (ONS), inflation in the UK fell to 7.9% in June 2023, the lowest level since March 2022, beating the previous forecast of 8.2% by economists surveyed by Reuters. This decline was mostly driven by lower motor fuel prices, which fell by 1.5% in June. Economists are now predicting the UK inflation to fall to 5.0% by the end of this year.
In the three months from March to May 2023, average earnings in the UK rose by 7.3% compared to the same period last year, the highest growth since the records began in 2001. The recent hike in earnings is partly attributable to inflation and partly to the UK's tight labour market, low unemployment rate and a large number of job vacancies. As wages in the UK continue to grow at a high rate, the Bank of England has once again accelerated the pace of rate hikes in an effort to quell rising core inflation. The Bank's Monetary Policy Committee has raised the Base Rate for the 14th consecutive time at its policy meeting, and rates have risen from an all-time low of 0.1% in December 2021 to 5.25% in early August 2023.
Overall, markets remained buoyant in July as investor optimism continued. Given the successive rebound in the equity and bond markets since the beginning of the year, and the uncertainty in the economics outlook, we are more inclined to building diversified portfolios of high dividend-paying quality investments. We also believe that increasing exposure to alternative assets including infrastructures will enhance the portfolio's defensiveness and provide inflation protection while generating attractive income.
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.
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