How have markets been performing?
Investments team update
Whether you have a pension or other investment, it will be invested in ‘the market’, so tracking how markets are performing and what’s affecting them, is a good idea. Our investments team have pulled together information on how shares, bonds, and property have performed over the last three months and what could affect them looking ahead.
Shares generally declined in value over the quarter. Most developed markets – such as the UK, US and Europe ex UK – and emerging markets fell back. Russia’s invasion of Ukraine and the sanctions (penalties) against many Russian companies continued to cause concern. Around the world, investors remained focused on rising inflation (prices) and how this would be tackled, particularly as oil, gas, and food prices jumped higher over the period. Meanwhile, worries surrounding the Covid-19 virus remained, with some countries starting to ease restrictions and others experiencing new variants.
Bonds also fell in value globally. Bonds issued by governments generally fell less than corporate bonds. Further rises in inflation, and the response by central banks (official banks that act as a lender to its country’s government and other banks) to limit this, continued to influence global bond markets. Several factors, such as growth in spending since the pandemic lockdowns, difficulties in the supply of goods, and the effects of the conflict in Ukraine on oil prices and supply, are causing inflation. 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, as did high-quality, energy-efficient, and flexible office space. Up to the end of May, the latest three-month figures available, shares in UK property grew. However, it is thought likely that the impact of inflation and uncertainty will start to affect global property markets.
Outlook: Financial markets can be prone to sudden changes on a short-term basis, known as volatility. Circumstances like the conflict in Ukraine, how Covid-19 develops, the health of the global economy, or inflation and how central banks might respond to that, 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.
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.