Ark Review of the Month
Market sentiment was influenced by heightened geopolitical uncertainty in October, with both bonds and equities declining. The US S&P 500 Index declined by 2.1%, the MSCI Europe ex-UK Index by 3.3%, and the UK FTSE All-Share Index by 4.1%. On the fixed income side, government bond prices edged up slightly across developed countries in Europe, but fell by 0.4% in the UK and 1.2% in the US. Commodities were notable, as energy prices rebounded and investors turned to gold as a safe haven.
As of 31 October 2023:
UK 10 Year Gilt Yield 4.52%
US 10 Year Treasury Yield 4.93%
Germany 10 Year Bund Yield 2.81%
Since January 2023, the UK's inflation rate has consistently been higher than that of other developed economies. In September, the UK Consumer Price Index (CPI) was 6.7%, flat month-over-month. Within this, food inflation fell, while car fuel prices and hotel prices rose, and service sector inflation rose from 6.8% to 6.9%. The International Monetary Fund (IMF) predicts that the UK's inflation rate will remain the highest in the G7 in 2024.
The UK's employment rate has also fallen slightly in recent months. The unemployment rate for June to August reached 4.2%, up from 3.5% last year. The aforementioned challenges—long-term high living costs and rising unemployment—mean that some households are taking on more debt, and higher interest rates will make it more difficult to repay these debts, which could pose longer-term problems for the UK society.
The UK Chancellor's autumn statement is due to be released next month, but it is widely believed that the Chancellor has limited room to increase spending or cut taxes in this economic environment.
Energy security has been one of Ark’s long-term investment theme in the past few years. Recently, battery storage funds such as GRID under this investment theme have seen price fluctuations, while the fund's net asset value remained unchanged. One of the reasons for the price fluctuation is the "green policies” U-tern announced by British Prime Minister Rishi Sunak. With the Conservative party lagging behind Labour in the polls, Sunak postponed the deadline for selling new petrol and diesel cars and the phasing out of gas boilers in order to win votes. This move has had a negative impact on investment sentiment in the energy industry. Another factor that has led to the decline in the price of energy funds is that the battery storage industry is currently facing the challenge of insufficient utilisation in actual operation, which limits corporate revenue.
In the long term, National Grid, the main consumer in the UK battery storage industry, still has unsatisfied demands for a stronger and more stable battery system due to its goal of building a carbon-free grid by 2025. National Grid Electricity System Operator has just announced a number of positive measures in October, aiming to remove the utilisation constraints by the end of this year. Therefore, we remain positive on the energy security investment theme, which diversifies our long-term investment portfolio.
Banking stocks, which account for a large proportion of the UK FTSE 100 Index, has also seen sharp declines recently. Our investment team has always been cautious about banking stocks, mainly due to the high leverage and relatively low returns of traditional banking businesses, thus we have not been affected by this market movement.
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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