Ark Review of the Month
In the first quarter of 2022, the Russia-Ukraine war affected the global economies significantly. Tensions between the two countries, which are both vital global energy and commodities producers, have further pushed up inflation and increased the risks of supply chain disruptions. Heightened investor concerns about central banks accelerating the pace of interest rate hikes to combat inflation also put greater pressure on global equity and bond markets. The UK FTSE All-Share Index outperformed the rest of the developed market and rose 0.5% in Q1, while the US S&P 500 Index and MSCI Europe ex-UK Index fell by 4.6% and 8.1% respectively. The MSCI Emerging Markets Index also dropped by 6.9% in Q1 2022.
As for the fixed income market, the UK Gilt prices fell by 7.6% in the first quarter, the US Treasury prices dropped 5.6%, and German Bund prices decreased by 5.2%. Global investment-grade corporate bond prices also declined by 7.4%.
The commodity markets continued to be volatile. Brent crude oil prices reached $127 per barrel in early March, the highest level since June 2008. Natural gas prices in Europe are currently at €121 per megawatt-hour, 55% higher than at the beginning of the year. The price of gold, a traditional safe-haven asset, has also risen, exceeding $2,000 per ounce for the first time since August 2020.
Government bonds yield as of 31 March:
UK Gilt 10 Year @1.61%
US Treasury 10 Year @2.34%
German Bund 10 Year @0.55%
Inflation in the UK reached 6.2% in February, the highest figure since we started to record it in 1997. Inflation at the same time last year was just 0.4%. The most prominent driver of price boosts continues to be the recent surge in household energy bills. Transport costs, fuel and used car prices have also risen sharply lately.
The Chancellor of the Exchequer, Rishi Sunak, announced in his 2022 Spring statement several initiatives to reduce taxes and living expenses including the following: fuel duty for petrol and diesel will be cut by 5% per litre across the whole of the UK for 12 months; the National Insurance threshold will be raised by £3,000; the base rate of income tax will be cut from 20% to 19% by 2024, benefit around 30 million people.
According to the spring statement, the expected growth of the UK economy in 2022 was updated to 3.8%, down from a previous estimate of 6%. Expected growth for 2023 is now 1.8%, down from a previous estimate of 2.1%.
Mrs Xia Wang, Ark's Chief Investment Officer, summarised the market and Ark's investment performance in the first quarter:
"Funds of sustainability and ESG themes suffered severe setbacks in January and February, followed by a mild rebound in March. Defensive assets (for example, tobacco, utilities and oil) and real assets (for example, real estate and infrastructure), were the top risers during the quarter.
This could be seen as another stress test for the market following the one during the first covid outbreak in Q1 2020. Over the last three months, we made some small adjustments to our positions while spending a significant amount of time learning the performance of each investment class in a stressed market and their long-term potential. We hope to ensure that our portfolios have both growth potential and defensiveness over the next 6-12 months. "
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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