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Investment Companies Roundup - March 2021

On balance, it was a good month for investment companies, February’s median total share price return was 0.7% (the average was 1.1%) which compares with a fall of 0.2% in January. Rising long-term interest rates coupled with fears of inflation have dented the valuations of high-growth stocks. February saw technology-focused companies sell-off, for example. Gold, which ought to be an inflation hedge, seems to have been hit by rising rates (gold is hampered by not generating an income). UK assets (and the pound) continued to benefit from the positive sentiment effect of the strong vaccine rollout. Several commodity funds have started the year very strongly, with the sector leading total price returns over 2021 to date A weaker dollar and Chinese demand for raw materials have been catalysts for this.

Scottish Mortgage was caught up in the technology sell-off. This affected some of the Japanese trusts too but the main problem seems to have been the strength of the pound. The yen tends to move in the opposite direction to long-dated US bond yields, which have been rising.

A strong oil price meant that energy-focused resource strategies, headed by BlackRock Energy and Resources Income and CQS Natural Resources Growth and Income, continued their strong start to the year. There has been talk of a new commodity super-cycle taking shape, with a weaker dollar and rampant Chinese demand driving prices over February.

Polar Capital Global Financials has been a major beneficiary from much-improved sentiment towards banking stocks, helped by rising long-term interest rates. Credit performance has held up much better than expected and it is now expected that banks across Western Europe and the US will move to re-instate dividend distributions over the coming weeks and months.