How have markets been performing?

Investments team update
Q1 2022

When you’re invested in “the market”, whether it be through a pension or other investments, it’s a good idea to track how markets are performing. Here, our investments team looks at how shares, bonds, and property have performed and what could affect them looking ahead.

Shares generally declined in value over the quarter, despite moving higher in March. Most developed markets – such as the US and Europe ex UK – and emerging markets fell back. Overall, shares in the UK rose slightly. After a weak start to the year for global shares, Russia’s invasion of Ukraine in late February led markets to drop further, amid concerns around the potential for the conflict to worsen and strong international sanctions (penalties) against many Russian companies. Rising inflation (prices) and how this would be tackled in the countries this affected remained an important focus for investors globally, particularly as oil and gas prices jumped higher over the period. Meanwhile, worries surrounding the Omicron variant of coronavirus faded somewhat, leading some countries to ease restrictions.

Bonds also fell in value globally. Bonds issued by governments generally fell less than corporate bonds. The threat of inflation and the response by central banks (official banks that act as a lender to its country’s government and other banks) continued to influence global bond markets. Inflation has been spurred by several factors, including plans designed to boost spending by businesses and consumers, the strength of growth achieved since the first Covid lockdowns and blockages in the supply of goods. In addition, factors surrounding the conflict in Ukraine, such as oil price increases and possible further supply shortages, added to concerns over rising prices. When inflation rises, interest rates usually do too, which drives bond yields up, and prices down.

Property: the UK commercial property market continued to make progress over much of the period. The market for buildings for use by delivery businesses remained notably strong, in part helped by underlying strength in online orders on the back of the work-from-home trend. However, shares of many property management companies globally fell back along with equity markets.

Outlook: Financial markets can be prone to sudden changes on a short-term basis (volatility). Factors like the conflict in Ukraine, following Russia’s invasion of the country, the health of the global economy, inflation and the likely response by central banks, or Covid-19 developments, could lead to more volatility in the near term. We focus on long-term outcomes (generally, 10 years or more) and the benefits of a portfolio that is spread across a number of different asset types, as we believe that over time this remains the best way to deliver positive results for our customers, and to help them meet their investment objectives.

Terms Explained

Whether you have a pension, an Individual Savings Account (also known as an ISA), or other type of investment product, it is likely that your savings are invested in a fund or mix of funds. Funds group money from lots of savers, which is then used to buy investments such as shares in companies or bonds, for example.

Shares offer investors a share of ownership in a company. Bonds act as loans to a government or a company in return for payment of a fixed rate of interest over time. Bonds are intended to be paid back in full at a predetermined date in the future. Shares are considered riskier investments but have the potential to be worth more over the long term. Profitable companies can, but are not required to, pay investors a payment known as a dividend. Bonds are often considered less risky and offer the advantage of regular interest payments. Bonds also rise and fall in value, but usually less so than shares. You may also be invested in a fund that owns other types of investments, such as shares of companies that own and manage property, or that invests directly in commercial property used by businesses and shops, for example, rather than for residential purposes.

Many pension funds will invest in both shares and bonds, and sometimes property or other types of investments. Funds that invest in more than one type of investment are called “multi-asset funds”. This is typically how your Scottish Widows pension might be invested. Investments come in a range of options from lower to higher-risk. Mixing different types of investments can offer you various levels of risk and potential reward, depending on what your investment goals are. This is because different investments do well at different times. Having a spread of investments with different risks balances out the overall risk of a portfolio over time.

A fund manager does all the hard work and decides which investments a fund should hold, in what quantities, and when the investments should be bought and sold.

A pension is a long-term investment. The retirement benefit(s) you receive from your pension will depend on a number of factors, including the value of your plan when you decide to take your benefit(s) which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.