Georgie Burks | Thursday 19th January, 2023
This monthly summary aims to give you a general understanding of the market landscape and help you to make informed decisions when it comes to your pension.
Here's a brief snapshot of what happened with the leading indices in the UK and US, and an update on the performance of Penfold's pension funds.
Last year was a tricky one for financial markets as they faced a few different challenges. The invasion of Ukraine dampened global economic prospects, and inflation soared, fuelled by rising commodity prices and supply chain disruptions. At the same time, central banks raised interest rates to contain the rise of prices, with a subsequent slowdown in consumer spending and investment activity.
Meanwhile, geopolitical tensions, local political instability and forecasts of an impending recession added further volatility to already uncertain markets. These factors combined to make for a challenging year for investors and market participants, with many finding it difficult to navigate the volatile and rocky conditions.
December has not been an exception. In fact, despite the November rally for both equities and bonds, in the last month of 2022, we saw a price correction for global markets, showing that volatility is still with us.
Pension funds also faced a similar scenario, experiencing a slight decline in December but maintaining some of October’s gains.
In December, the S&P 500 index, which is considered a leading indicator of the overall performance of the US stock market and is often used as a benchmark for the broader stock market's performance, saw a decrease of 5.90%.
So, in the face of November's rebound, the S&P 500 return for 2022 has been -19.44% - making it the worst performance since the 2008 financial crisis.
However, despite the adverse market performance of this year, it's essential to consider the historical context. The US equity market has seen an impressive 90.13% growth in the past three years. And over a five-year period, the market has seen an overall gain of 112.89%. While negative returns can be concerning, it is worth noting that stock market fluctuations, including one year’s worth of poor performance, are a normal part of investing.
But why are we that concerned about the S&P 500? Because it represents a large portion of Penfold pension plans and can provide a good indication of their performance. It's also essential to remember that these plans are diversified to mitigate market risk and include investments in a variety of asset classes and markets worldwide, meaning that the correlation between the S&P 500 and the overall value of your pension is not 1-to-1.
Despite the general roller coaster experienced at both local and international levels (recession fears, the spike in inflation, and political chaos with three different PMs in just eight weeks), the UK market ended 2022 with decent performance.
The FTSE 100, an index of the 100 largest companies listed on the London Stock Exchange (LSE), closed the year 0.9% higher than twelve months before. While it's a very modest gain, which was mainly driven by the significant uptick in the share prices of energy and mining companies, it remains substantial compared to the results of the US and European markets.
Also in this case the performance of the market had an impact on pension funds but with a smaller effect than the US markets, as the allocation of UK equities within Penfold's funds is pretty limited.
After experiencing a positive rebound in November, our pension plans saw a slight decrease in value during December.
Although the first half of the year was marked by a considerable downturn due to the impact of global financial markets and as a normal correction after exceptional growth in 2021, the second half has shown signs of stabilisation, which may indicate a potential reversal of the downward trend in the coming months.
Zooming out and looking at a longer time frame is particularly useful during periods of volatility. By observing the chart above, you can see the percentage changes in five of our pension investment plans since their inception, showing that despite the global upheaval of the last twelve months, the summary of the last few years is still positive.
It’s easier said than done, but it’s also always good to remember that short-term fluctuations in long-term investments should not cause too much stress.
As we have seen, global financial markets are currently experiencing a lot of uncertainty, with forecasts for future performance varying widely.
That said, there are three predictions for 2023 that we are bearing in mind for the year ahead:
All in all, while we may not have a crystal ball, we promise to keep a close eye on the market and keep you updated on the latest developments so that you can make your own informed decisions. So please sit back, relax, and let us do the heavy lifting.
With investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice and past performance is not a reliable indicator of future performance.