ii investment review: Q3 2021

Amid the continued global recovery from Covid-19, commodities was the best-performing asset class.

Market round-up

The global recovery from the Covid-19 pandemic continued, prompting demand to rise and pushing the supply chain to the limit in certain industries. In the third quarter, the best-performing asset class was commodities, advancing 9.9% and lifting year-to-date gains to 38.4%. A hawkish shift from central banks and continuing inflationary pressure saw global inflation-linked bonds return 3.1% on the back of concerns over rising inflation levels.

Developed market equities posted a small gain of 2.4%, while emerging market equities were hit hard with a loss of 5.8%, wiping out the gains made in the first half of the year.

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There was a touch of improvement in the global bond market, with high yield and corporate bonds rising by 2.1% and 1.6%.

Source: Morningstar Total returns in sterling

Shares

Strong momentum in September lifted Japanese equities’ gains over the third quarter, with a return of 7.3%. Japan was the best performer among developed markets.

In second place were US equities, with the S&P 500 index delivering a gain of 3.1%, mainly driven by strong earnings in August. However, concerns over economic growth and inflation weighed on the US market in September.

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Performance of the energy sector helped the UK equity market, with the FTSE All Share up 2.2%. Eurozone equities traded sideways, dragged down by consumer discretionary despite the strong returns in the energy and information technology sectors.

Driven by a significant sell-off in China, Asia ex-Japan equities suffered a sharp decline of 6.2% during the period, as well as writing 5.8% off emerging market equities, as concerns over the credit risk of property group Evergrande (SEHK:3333) spread globally.

Sectors

In the global market, the financials and energy sector were the standout winners in the third quarter, with returns of 4.6% and 3.8% respectively, reflecting the surging demand for energy and the expectation of rising interest rates in the coming months. The worst-hit sector was materials, a loss of 2.7%, as industry-wide raw material availability issues persisted, casting a shadow over the ability to fully meet high demand.

Bonds

The bond market experienced a small recovery, and this could be a sign of shrinking risk appetite. The market was pricing in that the inflation would stay at least for the near term, reflected by global inflation linkers returning 3.1%, while UK Inflation Linkers rose 2.3%. However, UK Gilts and Sterling Corporates declined by 1.8% and 0.1%, respectively, as increased expectations for monetary policy tightening pushed yields higher.

Commodities and alternative investments

Crude oil and commodities advanced further in the third quarter, bringing the year-to-date return to 53.7% and 38.4%, respectively, as demand continued to surge. Property also had as strong quarter on the back of stronger consumer confidence as economies re-open.

Most-traded shares on the ii platform in Q3 2021