In February 2021, we saw Covid-19 infection rates continue to decline and were encouraged by the pace of vaccine roll out, particularly in the US and UK. Both these measures have provided markets with longer-term comfort, and the improving economic outlook also lifted oil prices gradually - from around USD 40 in November to around USD 60 at the end of February.
However, investors showed increased concern about inflation with further monetary and fiscal stimulus ahead. While this support should boost the economy, it may also increase inflation which could cause higher interest rates if inflation rose persistently. We saw this weigh on investments, especially government bonds, in the second half of February.
Data which was released last month, also showed that the global Manufacturing Sector improved, hitting a new recent high. There was a firm pick-up in Eurozone manufacturing, led by France and Germany, however, the global service sector continues to lag due to Covid-19 restrictions. Retail sales across the US and Europe saw further improvement, but the UK saw a sharp decline in January’s spending report, this was likely caused by the post-Christmas lockdown.
Despite a strong start to February, in the second half of the month, we saw bond prices fall due to inflationary concerns (yields rise when bond prices fall) in the second half of the month also weighing on shares, reducing gains. However, all share markets rose, with Japan (3.19%), the US (2.61%) and Europe (2.31%) showing the strongest gains. This was followed by the Asia Pacific excluding Japan (+1.28%), FTSE-100 (1.19%), and Emerging Markets (0.73%).
The gains in assets held in foreign currency are lessened in our Plans due to the Sterling’s growth, which we’ll discuss below.
Sterling continued to benefit from optimism due to the advanced pace of the UK’s vaccine roll out. This saw Sterling rise against the US dollar (+1.61%), Euro (+2.11%), and Japanese Yen (+3.36%) – this means that assets held in these currencies didn’t benefit as much when looked at in Pound Sterling.
Investment type performance breakdown
While shares rose (+0.39%), their performance was lessened by the rise in Sterling. Expectations about accelerating inflation supported the property sector (+2.66%), but inflationary fears saw bond prices dip (-1.17%).
Summary with Plan details
Stock market and property gains in February were offset by bond market declines, this caused all Wealthify Plans to move marginally lower. Those Plans that hold more bonds (such as our ‘Cautious’ portfolios)* saw a larger decline, while those with more shares (such as our ‘Adventurous’ portfolios) were less impacted. Our Investment Team continue to actively monitor the financial markets and their impact on your Plan, and as always, we are ready to act in your best interests to events as they unfold.
*Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.