Ark Review of the Month
In November, global stock markets recorded their best ever monthly performance as three vaccines were shown to be effective and the US released its election results. MSCI Europe ex-UK Index and FTSE All Share Index were in lead, up 14.2% and 12.7% respectively, after a relatively weak year. MSCI US and Emerging Markets index, which have been out-performers over the year, also increased 11.6% and 7.8% respectively. The US has shown more signs of an economic recovery, October’s unemployment rate dropped one percent from previous month to 6.9%.
Government bond yields and prices were volatile during the month in response to news of the US election and vaccine developments. US Treasury prices increased slightly by 0.3% and emerging market hard currency bonds increased 3.9%. Corporate bonds performed well in general, with investment grade bonds prices up 2.1% and high yield bonds prices up 4.1%. Benefited from the strong performance of the equity market, convertible bonds were also in high demand, Thomson Reuters Global Focus Index which measures balanced convertible bonds, increased by 6.5% over the month.
Government bonds yield as of 1 December:
UK Gilt 10 Year @0.34%
US Treasury 10 Year @0.92%
German Bund 10 Year @-0.53%
The UK government reintroduced three-tier system of restrictions this month to contain the latest outbreak of the virus. The government also announced an extension of its furlough scheme till the end of March. The Office for Budget Responsibility predicts that government borrowing will reach £384 billion this year, which equals to 19.4% of GDP, a figure not seen since the Second World War. To ensure that the government can continue to fund these support measures, the Bank of England has kept gilt yields low and announced that it will expand its asset purchase facility by a further £150 billion, £50 billion more than the market expectation.
There was also good news during the month, sentiment was helped by hopes that a trade deal between the UK and the EU could be reached before the transition period ends on 31 December 2020.
On 17 November, Intermediate Capital Group announced its half-year results for the six months to 30 September 2020. This is a financial services business, the company has a BBB credit rating with stable outlook and has been in our fixed income portfolio for the past three years. Even in this year's circumstances, ICG Group has achieved a significant growth in profit, its profit before tax increased 29% to £197.8m. The company is financially stable with £1 billion of cash in hand, which allows it to increase its interim dividend by 13% to 17p per share.
Yesterday, Paragon Banking Group, which is another financial services business in our portfolio, announced its full year results for the year ended 30 September 2020. The company preserved all business functions during the pandemic and delivered a robust performance in the year with growing new lending. Retail deposits continued to grow, up 22.9% to £7.86 billion, providing the Group with a reliable, scalable and cost-effective source of funding. The company declared a full year dividend of 14.4 pence per share, which reflects its strong liquidity levels, benefitting from increasing diversification of funding sources and a prudent approach to maintaining high cash levels.
We hope that you and your loved ones stay safe and healthy throughout this challenging time. We want to reassure you that our business will continue to offer high standard services as always.
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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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