Concerns over a potentially dangerous new variant of Covid-19 hit global markets in November. Scientists are still learning about ‘Omicron’, but they are concerned that the large number of changes it has undergone from the original strain could make it more transmissible than the currently-dominant Delta strain and present vaccines may be less effective. New travel restrictions have come into force, but much remains unclear.
Aside from the pandemic, inflation continued to be the top concern for investors as shoppers brought forward Christmas spending to counter supply shortages that have contributed to the current jump in the cost of living. Despite central bank rhetoric, some inflation pressures look to be more than transitory. Supply chain blockages, ‘de-globalisation’ and, longer term, the costs involved in meeting net zero carbon emission targets all look like they will continue to impact prices. Authorities face a dilemma. Ignore the larger inflation numbers coming through and it could require greater interest rate hikes to control rises later. Clamp down aggressively and it could hamper growth when it may already be stalling – especially if restrictions of movement are required to combat the new Covid variant.
Overall, it ended up being a strong month for bonds as fears surrounding the new variant overwhelmed inflationary worries.
Market reactions are increasingly being defined by decisions surrounding ‘tapering’ of quantitative easing and interest rate direction, and by news that might influence policymakers’ actions. A US inflation reading of 6.2%, the highest in 30 years, briefly ignited the gold price and put some pressure on bonds during the month, albeit short term moves were quickly retraced as investors took a more sanguine view that surging food and fuel prices will fall back into line. Overall, it ended up being a strong month for bonds as fears surrounding the new variant overwhelmed inflationary worries.
US equity markets were still reasonably strong during the month as third quarter earnings season largely saw companies preserve profit margins in the face of rising costs. In the UK, however, third quarter GDP disappointed as weak consumer spending and supply chain issues, notably building materials and semiconductor chips in the auto industry, put the brakes on recovery. The UK economy is still 2.1% smaller than in the final three months of 2019, before the pandemic hit.
Market-implied odds of a UK interest rate hike by the end of the year have dropped to 55 per cent from 90 per cent a week ago. The Bank of England may still decide to put up rates a modest amount, having not done so in November and with employment figures increasing at a healthy pace, but the recent news about Omicron and its potential effects on economic activity may stay the Bank’s hand for the time being. Meanwhile, Europe succumbed to another wave of COVID-19 and industrial figures continued to disappoint. Eastern European funds also suffered from exposure to energy, which fell back as oil prices receded from their recent peak.
Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors* for November 2021 in full:
Top 10 funds:
Bottom 10 funds:
Top 10 sectors:
Bottom 10 sectors:
Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for November 2021: 31/10/2021 to 30/11/2021. Onshore and retail open-ended funds only.
*There are several thousand funds on sale in the UK. The Investment Association divides these into over 40 ‘sectors’, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.
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