The first quarter of 2022 has proven to be difficult, although the tide seems to have turned in March, with market performance offering a mostly positive month for shares.
The threat of inflation and interest rate hikes once again took centre stage, which has been reinforced by the surging energy prices (increased further due to Russia’s invasion of Ukraine) and is expected to push inflation numbers even higher around the world.
Both oil and gas prices were extremely volatile over the course of the month. After spiking in early March, Brent oil and European gas ended the month at $103 and €121 per megawatt-hour, representing a 33% and 55% gain respectively since the start of the year.
Higher energy prices will likely increase the rate of inflation, which continues to be a thorn in the side of major central banks. Data released in March showed that UK inflation continued to climb in February, up from 5.4% to 6.2% year on year (yoy), reflecting a real term increase in the prices of goods and services. In the US, inflation also increased from 7.5% to 7.9% yoy for February. Meanwhile, Eurozone inflation hit yet another 30-year high, increasing from 5.1% to 5.8% yoy, off the back of surging energy costs and ongoing supply bottlenecks.
Data released in March (for February) showed a slight slowdown in the UK’s services sector and a small amount of growth in the manufacturing sector, leading to a marginal decline, although overall levels remain robust. UK unemployment also declined further from 4.1% to 3.9% with job vacancies hitting record highs with more than 1.3 million vacancies recorded.
March saw a tale of two different stock market environments, with developed markets delivering positive returns, while Emerging Markets and parts of Asia have struggled. Much of this has been impacted by Covid-19 lockdowns across major manufacturing hubs, especially within China.
Japan (4.88%), US (3.58%), FTSE-100 (0.77%), Europe (0.61%) and the FTSE-250 (0.37%) all delivered positive returns in March. Asia Pacific excl. Japan (-0.86%) and Emerging Markets (-2.52%) finished the month negatively.
The effects of foreign currency movements on investment performance are discussed below.
Sterling weakened in value for a second consecutive month against most major currencies, including the US dollar (-2.15%) and Euro (-0.76%).
The one exception was Sterling gaining value against the Japanese yen (+3.48). The Japanese yen has come under significant pressure relative to major currencies from countries where interest rates are expected to rise (e.g., the US) in order to cool the economy and reduce inflation. As Japan, has had subdued economic activity due to virus curbs and rising energy costs, there is little expected from the Bank of Japan in terms of hiking interest rates. These differences in interest rate expectations have been driving currency movements over the month.
The performance of shares held in US dollars and the euro, will have benefitted from the weakened sterling, while those held in yen would have been negatively impacted.
Investment type performance breakdown
In Original Plans, property (7.35%) and shares (3.92%) rebounded this month, while Bond prices fell (-1.62%) as inflation and interest rate expectations continued to weigh them down.
It was a relatively similar story in Ethical Plans, with shares having positive performance in March (3.10%), while bonds (-1.40%) fell.
Summary with Plan details
Almost all of our Investment Plans in both Original and Ethical themes performed positively in March. The exception to this is our Cautious Plans, as they hold the most bonds, and therefore returned a slightly negative performance.
Plans that have more shares and property, such as our Ambitious and Adventurous models, had better performance than those Plans with more bonds, such as our Cautious and Tentative Plans.
Our Investment Team continues 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.
Please remember the value of your investments can go down as well as up, and you could get back less than invested. Past performance is not a reliable indicator of future results.