Ark Review of the Month
In the first quarter of 2021, global equity markets performed well in general, led by developed markets where vaccination went well. S&P 500 Index increased by 6.2% and FTSE All-Share Index rose 5.2%. MSCI Global Index is now 18% higher than the pre-pandemic level in early 2020.
On the contrary, Q1 witnessed the underperformance of sovereign and corporate bonds. A sharp rise in yields led to the fall in government bond prices, with US Treasuries down 4.3% and UK Gilt down 7.4%. As for corporate bonds, prices of global investment-grade bonds and high yield bonds decreased by 4.2% and 1.0% respectively.
Government bonds yield as of 31 March:
UK Gilt 10 Year @0.84%
US Treasury 10 Year @1.73%
German Bund 10 Year @-0.28%
The UK government launched a new £5billion infrastructure project in March. The project includes building gigabit broadband in hard to reach areas to help recovery from the pandemic. More than one million homes and businesses will have next-generation gigabit broadband built to them in the first phase of the project.
Meanwhile, 58% of UK adults have now received at least one dose of the vaccine. Investors have shown great confidence in the recovery in economic activity, with equity markets continuing to rebound, FTSE 100 and FTSE AIM both up 3% over the quarter, FTSE Small Cap Index also increased significantly by 9%.
At the Bank of England's Monetary Policy Committee meeting in March, BoE announced that the interest rate will be kept at 0.10%. Although BoE has previously been exploring the possibility of introducing negative interest rates as a new policy tool, the central bank has also said that it would not introduce negative interest rates without giving commercial banks advance notice to prepare for this, which would be at least six months. Given that most investors expect the economy to pick up sharply this summer, this effectively rules out the possibility of further interest rate cuts. With the recent rise in bond yields, investor demand for safe-haven assets has also shifted significantly towards riskier asset classes such as equities.
Indeed, in most developed markets, investor demand for riskier assets always reflects market perceptions of central bank policy. Shares in smaller companies are often seen as a barometer of the economic environment and central bank policy, as they are generally riskier than large and medium sized companies and are highly dependent on the local economic environment in terms of financing and operations. UK's FTSE Small Cap Index and FTSE AIM Index are typical examples, both of which are currently at their peak since the 2008 financial crisis. Investors are optimistic about the UK's economic recovery and it is expected that BoE will keep the interest rate unchanged in the foreseeable future.
Financial Scams Reminder
Scams and frauds have multiplied in the financial industry over the last two years. Here are some useful tips on how to avoid investment scams:
Reject unexpected offers. If you’re contacted out of the blue about an investment opportunity, chances are it’s a high-risk investment or a scam.
Spot the warning signs. Such as unexpected contact, the time pressure of offer and unrealistic returns.
Check if a firm is FCA-authorised. If not, it’s probably a scam.
Get impartial advice. If in doubt, speak to us and we will be happy to help.
We would like to reassure you that we as an FCA regulated financial institution have stringent security measures in place, including data security.
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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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