Q3 2021 Investment Commentary

 Our Q3 report is here! We summarise what has been happening in the market across the globe, and what impact this has had on our portfolios.

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Asset Class Returns. More of the same… well almost

The global economy continued to recover in the third quarter of 2021, albeit at a slower pace, with the IMF announcing that its July forecast of 6% global growth in 2021 will be revised slightly downwards in its imminent bi-annual World Economic Outlook survey. [1] The OECD also updated its global economic growth forecast for the year, revising their figure down 0.1% to 5.7%. [2] But let’s put things in perspective, even after these revisions, the forecast growth rates are still the highest they have been since 1973, when the global economy achieved growth of 6.5%. [3]  

Returns on developed market equities continued to rise over the quarter but started to struggle in September and lost some ground. However, over the longer period gains remain strong, with developed market equities showing a 14.6% [4] return for the year to date. In emerging markets, it was a somewhat different story, with Chinese equities dragging down the sector despite strong returns in countries such as India.

Source: FEAnalytics (2021)  [5]

China’s equity market came under attack from a variety of directions over the quarter. Firstly, the government’s decision, to force firms operating in the $100bn private tutoring sector to register as non-profit, had investors worrying about the potential for similar measures to be applied to other industries. Tighter regulations on technology, which included a ban on children playing computer games for more than three hours a week, only added to investors’ anxieties. Finally, the continuing saga of Evergrande and the potential ramifications for the Chinese economy, were it to collapse, put further pressure on equities. Despite this, the OECD forecastsChinese economic growth at 8.5% this year and 5.8% in 2022, both figures remain unchanged from previous forecasts made in May. [6]

Returns in emerging markets have also been hampered by the “Great Vaccination Divide”, to borrow a phrase from the IMF.While great strides have been made in the global vaccination rollout, low-income nations are still lagging their richer counterparts. These countries also lack the resources to provide economic support in the form of stimulus packages. Because of this, while the IMF predicts that economic output in developed economies will return to pre-pandemic levels by 2022, most emerging economies will take many more years to recover. [7]

Source: OurWorld Data (2021)  [8]

The US, still the engine of the global economy, appeared to stutter slightly after a summer of supply-chain bottlenecks and continuing inflationary pressure. Consequently, the OECD lowered its growth prediction for 2021 from 6.9%, to a still impressive 6%. [9] This slowdown over the summer months was reflected in US equity market returns, which were 2.8%over the third quarter down from 8.7% over the second. [10]

Source: FEAnalytics (2021) [11]

Bond investments continued to lag equities, as expected. While global bonds saw continued positive returns, up to 1.6% over the quarter, compared to 1.2% in the previous quarter, UK government bonds saw returns drop from 1.9% to -2.0%. [12] Compared to the one-year period, to the end of the last quarter, bond returns have marginally improved over the most recent year. Global bond returns were -5.0% over the last 12 months, compared to -6.9% at last quarter end and UK government bonds, -7.4%, up from -8.2%. [13]

Source: FEAnalytics (2021)  [14]

Although the situation has improved, bonds remain in negative territory and when compared to the returns of the global equity market over the last year, investors would rightly question the rationale of continuing to hold such assets.

So why do we continue to hold bonds in our portfolios? To provide a safety net when equity markets fall. This is exactly what happened during 2020. As the pandemic hit, equity values dropped and as investors sought out less risky assets, the bond market rose, softening the blow.

What is causing the bond market to have such a challenging time? Government and central banks’ responses to the pandemic, via low interest rates and stimulus packages, have put pressure on bond yields over the last 18 months. More recently, concerns over inflation have piled on further pressure.  

Inflation in the US hit 5.3% [15] in August, a 30year high and well above the Federal Reserve’s target of 2%. On the continent,Euro area inflation is expected to be 3.4% [16] in September, up from 3% the previous month. It was a similar story in the UK, with rates hitting 3.2% [17] inAugust, up from 2% in July, representing the largest month on month increase since the Office of National Statistics (ONS) started keeping records inJanuary 1997.

The Bank of England, the European Central Bank and the Federal Reserve still maintain that the recent spike in inflation is transitory and price pressures will ease in 2022, removing the need to increase interest rates. Interestingly, the Bank of England did concede, in its AugustMonetary Policy Summary, that the UK economy is “projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report”. [18]

By the end of September, it appeared clear that the financial markets don’t agree with the central bankers when it comes to inflation. Expecting a more prolonged period of inflation, which will inevitably force central banks to respond by increasing interest rates therefore decreasing the value of bonds, investors took flight.

Of course, interest rate rises will also hamper the economic recovery as borrowing costs rise. To compound problems, if the markets are right, these rises could come at the same time when government stimulus packages start to come to an end. Have the central bankers or the markets gotit right when it comes to inflation? Time will tell.

As the quarter drew to a close, equity markets started to lose ground. In recent weeks, investors have been bombarded by worrying news: Downward revisions to global economic growth forecasts, problems in the Chinese property market, increasing inflation, supply bottlenecks and increasing fuel costs. It seems that investors can’t get a break!

Unsurprisingly, markets have reacted, and we have witnessed equity prices fall. Is this something that investors should be worried about? Honestly, no. Let’s cast our minds back to early 2020, the pandemic was in full swing and records were being broken for how large and fast equity markets were dropping. Since then, equity markets have been on the up, but as always, not in a smooth and consistent manner.

No one knows what the future will hold but we do know that using very recent events to predict the future in financial markets is likely to cause nothing but unwanted anxiety. The long term is what matters!

Portfolio Performance [19]

OpenMoneyCumulative Gross Performance

Portfolio returns continue to build on the momentum of last year. Returns over all time periods remain in positive territory across the OpenMoney portfolio range. Although still showing impressive returns, relative to the previous quarter, we see a slight drop-off in performance across all portfolios. This was to be expected however, following a global economic slowdown over the summer coupled with the challenges within the bond market which are addressed above. The importance of maintaining a multi-asset portfolio is once again demonstrated. While bond markets have struggled, equity markets have continued to grow, driving overall portfolio return

Source:Betafolio (2021)


Source: Betafolio (2021)


1.     IMF (2021).

2.     OECD (2021).

3.     World Bank (2021).

4.      Developed Equities: MSCIWorld. Performance period: 01/01/21 - 30/09/21.

5.      Developed Equities: MSCIWorld; Global Equities: MSCI ACWI; Emerging Market Equities: MSCI EmergingMarkets. Performance period: 30/06/2019 - 30/09/2021.

6.      OECD (2021).

7.      IMF (2021).

8.      For vaccines that require multiple doses, each individual dose is counted. As the same person may receive more than one dose, the number of doses can be higher than the number of people in the population.

9.      OECD (2021).

10.    US Equities: MSCI USA.Performance periods: 31/03/2021 - 30/06/2021 and 30/06/2021 - 30/09/2021.

11.    Global Bonds: BloombergGlobal Aggregate, UK Government Bonds: Bloomberg Global Aggregate UK GovernmentFloat Adjusted, UK Equities: FTSE All Share, Global Property: FTSE EPRA Nareit Global, Emerging Markets Equity: MSCI Emerging Markets, EU Equities (ex-UK):MSCI Europe ex UK, Japanese Equities: MSCI Japan, US Equities: MSCI USA, GlobalValue Equities: MSCI World Small Value, Global Equities: FTSE Global All Cap,UK Inflation (RPI): UK Retail Price Index. Performance Periods: 1 Year:30/09/2021 – 30/09/2020; 3 Year: 30/09/2021 - 30/09/2018; 5 Year: 30/09/2021 -30/09/2016; 7 Year: 30/09/2021-30/09/2014.  

12.    Global Bonds: BloombergGlobal Aggregate; UK Government Bond: Bloomberg Global Aggregate UK GovernmentFloat Adjusted. Performance periods: 31/03/2021 - 30/06/2021 and 30/06/2021 -30/09/2021.

13.    Global Bonds: BloombergGlobal Aggregate; UK Government Bonds: Bloomberg Global Aggregate UK GovernmentFloat Adjusted. Performance periods: 30/06/2020 - 30/06/2021 and 30/09/2020 -30/09/2021.

14.    Global Equities: FTSE GlobalAll Cap MSCI ACWI; Global Bonds: Bloomberg Global Aggregate; UK GovernmentBonds; Bloomberg Global Aggregate UK Government Float Adjusted. Performance period: 30/09/2020 - 30/09/2021.

15.     U.S. Bureau of Labor Statistics (2021).

16.     European Commission (2021).

17.     Office for National Statistics (2021).

18.    Bank of England (2021).

19.    All data is up to last price- 01 October 2021. Past performance is no guarantee of future return. Data sourced from Morningstar API. Careful consideration has been taken to ensure that the information is correct but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies here in. Percentages may not total 100 due to rounding. Performance Periods: 1Year: 01/10/2020-01/10/2021; 3 Year: 01/10/2018-01/10/2021, 5 Year:01/10/2016-01/10/2021, 7 Year: 01/10/2014-01/10/2021. Additional performance periods may be accessed with the help of your adviser via the Betafolio ControlCentre: https://app.betafolio.co.uk.  



Aegon. (2020). Can financial advice impact financial wellbeing? Aegon. Retrieved fromhttps://www.aegon.co.uk/content/dam/ukpaw/documents/can-financial-advice-impact-financial-wellbeing.pdf

Aviva. (2021, April 22).Financial confidence is no substitute for good advice. Retrieved fromhttps://www.aviva.com/newsroom/news-releases/2021/04/financial-confidence-no-substitute-for-good-advice/

Bank of England. (2021,August 5). Monetary Policy Summary, August 2021. Retrieved from Bank ofEngland: https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/august-2021

European Commission. (2021,October 1). Retrieved fromhttps://ec.europa.eu/eurostat/documents/2995521/11563291/2-01102021-AP-EN.pdf/18dab5f9-9b23-7635-cc31-9112465da2fb#:~:text=Euro%20area%20annual%20inflation%20is,office%20of%20the%20European%20Union.

Financial Conduct Authority.(2021). Financial Lives 2020 survey: the impact of the coronavirus. Retrievedfromhttps://www.fca.org.uk/publication/research/financial-lives-survey-2020.pdf

International Monetary Fund(IMF). (2021, October). Overcoming Divides and Removing Obstacles to Recovery.Retrieved fromhttps://www.imf.org/en/News/Articles/2021/10/05/sp100521-md-curtain-raiser-overcoming-divides-and-removing-obstacles-to-recovery

OECD. (2021, September 21).OECD Interim Economic Outlook: Keeping the recovery on track. Retrieved fromhttps://read.oecd-ilibrary.org/view/?ref=1107_1107883-3aspl8g074&title=keeping-the-recovery-on-track-Interim-eco-outlook-2021-sept&_ga=2.163058044.1376654769.1633624037-711359066.1631527273

Office for NationalStatistics. (2021). Inflation and price indices. Retrieved from Office forNational Statistics:https://www.ons.gov.uk/economy/inflationandpriceindices#timeseries

Our World Data. (2021).Statistics and Research: Coronavirus (COVID-19) Vaccinations. Retrieved fromhttps://ourworldindata.org/covid-vaccinations

Royal London. (2021).Exploring the advice gap. Retrieved fromhttps://adviser.royallondon.com/globalassets/docs/adviser/misc/br4pd0007-exploring-the-advice-gap-research-report.pdf 

The International LongevityCentre UK. (2019). What it's worth. Revisiting the value of financial advice.Retrieved fromhttps://ilcuk.org.uk/wp-content/uploads/2019/11/ILC-What-its-worth-Revisiting-the-value-of-financial-advice.pdf

The World Bank. (2021).World Bank Open Data. Retrieved from https://data.worldbank.org/

Today’s Wills & Probate.(2018, November 15). Report Finds More People Making Wills In 2018. Retrieved from https://www.todayswillsandprobate.co.uk/main-news/more-people-making-wills-2018/

US Bureau of LaborStatistics. (2021). Consumer Price Index. Retrieved from US Bureau of LaborStatistics: https://www.bls.gov/cpi/




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