- Indian summer dominates the fund performance tables
- Oil and aerospace are back in fashion
- Gilt funds sell off
- Most popular funds, shares and trusts with DIY investors
Laith Khalaf, head of investment analysis at AJ Bell, discusses the best performing markets, funds and shares in the third quarter of 2021:
“It’s been a positive summer for most markets, though the vaccine momentum of the first part of the year has waned, as concerns over inflationary pressures and tighter monetary policy have surfaced. Investors are now looking forward twelve months into 2022, where growth will become more arithmetically challenging, as the global economy starts to lap a period when it was already firing on all cylinders.
“The winter therefore looks set to deliver a more nuanced picture for investors than the vaccine-driven animal spirits we saw at the end of last year. Inflation will remain elevated and that will begin to test the nerve of central banks. November looks like a crunch month, where central bank meetings on both sides of the Atlantic could fire the starting gun for the tightening cycle. Some expectation of tighter monetary policy has already been baked into prices, with both bond yields rising, and the valuations of some growth stocks getting clipped back from lofty levels.
“Equity investors can afford to take a long term view and console themselves with the fact that if central banks feel confident enough to hike rates, that will mean the economy is in fine fettle, and companies should be delivering earnings growth. Bond investors might legitimately be a little more perturbed by monetary tightening however, particularly those invested in longer dated government bonds. They’ve had an exceptional run since QE was introduced after the financial crisis, but the screw may be beginning to turn in the opposite direction. Bonds still act as a diversifier against an equity portfolio, to provide some ballast in case the global economy stutters. But right now, the yield provided by conventional gilts looks scant compensation for the risk of higher interest rates, and inflation.”
“2021 has been a positive year for equity markets so far, and while most still posted positive returns in the third quarter, the pace of growth has slowed. The exception is the Japanese stock market, which experienced a late summer surge. The Nikkei 225 reached a 31 year high in September, following the Prime Minister’s resignation. It’s galling enough for Chief Execs to see their company’s share price rise when they announce they’re moving on, so spare a thought for Yoshihide Suga, who saw the whole Tokyo stock exchange cheering his departure.”
|£ Quarterly return %||£ Year to date return %|
|FTSE AIM All Share||-0.1||8.2|
|FTSE All Share||2.2||13.5|
|FTSE Small Cap||2.3||22.2|
|MSCI Europe Ex UK||0.5||11.0|
Source: AJ Bell, Morningstar total return in GBP to 30th Sep 2021