Ark Review of the Month
Global equity markets performed well in October, with growth stock prices increasing 6.7%, value stock prices increasing 4.6% and the MSCI World Index rising 5.5%. In the US, more than 80% of companies reported earnings that exceeded expectations in Q3, pushing the S&P 500 Index up 7% over the month and to a new peak. In Europe, economic activities are recovering steadily in most sectors, except automotive, which still struggles due to the global shortage of semiconductors. The MSCI Europe ex-UK Index increased 4.2% over the month, and the UK FTSE All-Share Index increased 1.8%.
On the other side, the fixed income markets were much weaker. Shortages in global supply chains and continued increases in energy prices have prompted concerns about long-term inflation and eroded the value of future cash income provided by bonds. Yields to maturity have risen for most developed market sovereign bonds, leading to the decline in prices. Over the last month, global sovereign bond prices decreased by 0.3%, while global investment-grade corporate bond prices were flat.
Government bonds yield as of 1 November:
UK Gilt 10 Year @1.07%
US Treasury 10 Year @1.58%
German Bund 10 Year @-0.10%
Last month, the UK announced a tax and National Insurance increase for employers, employees, self-employed and investors in order to address the government's funding crisis in healthcare and social security. Starting from April 2022, the dividend tax rate will increase by 1.25% and National Insurance will also increase by 1.25%. This increase in National Insurance will mean an additional expense of £505 per year for an employee earning £50,000 or £1,130 per year for an employee earning £100,000, as well as an even greater expense for business owners.
Therefore, more business owners are now considering introducing ‘Salary Sacrifice’ at an institutional level, i.e. employees give up a portion of their salary in exchange for an increase in the employer's contribution to their pension. By doing so, both the employee and the employer could save considerably on NI contributions.
For individuals, as dividend tax rises, it becomes even more beneficial to make full use of annual tax-free investment allowance through a Self-Invested Personal Pension (SIPP) and an Individual Savings Account (ISA). We are already halfway through the 2021/22 tax year, if you have not yet used your £40,000 SIPP and £20,000 ISA allowance this year, we are happy to assist you.
With the COP26 conference taking place in Glasgow this month, we expect the market to focus more on environmental, social and governance (ESG) factors. At the conference, global leaders and business executives will explore topics including emission reduction plans, phasing out fossil fuels, and providing environmental funding for developing countries, aiming to control global temperature increases within 1.5 celsius in the 21st century.
Coincidently, while attending the 10th Annual Risk EMEA Summit in London, our risk officer keenly observed that ESG and climate risk sessions attracted far more delegates than any other session. The fact that ESG related discussions occupied one full day in a two-day summit speaks volumes about how much (or little) many of us know about ESG's application.
Renewable energy providers and energy storage manufacturers may be the biggest winners after COP26. According to market analysts, about one-third of the world's equity has flown into funds with a 'sustainable' label. Early-stage financing for clean energy technology startups has also risen to record levels. The International Energy Agency predicts that the market for wind turbines, solar panels, lithium batteries, electrolyzers and fuel cell manufacturing will reach $27 trillion if the world is on track for achieving net-zero by 2050.
While appreciating the investment opportunities in renewable energies presented by global climate awareness, investors also need to be aware of the potential impact of climate change itself on assets. For example, portfolios holding coastal properties will face more risk from extreme weather these years.
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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