When the lights go out, investors clasp tight to their chests any stocks which helps them sleep well at night. These “Teddy Bear” stocks can most easily be found in Consumer sectors selling everyday items such as drinks, food or pills to cover our daily needs. We have need of them whatever the economic storms are. The “lights going out” in economic terms can be seen in the rate of interest which central banks set.
We constantly look at how we can exploit market inefficiencies, but as the Brexit clock ticks, the need to protect against increased volatility and uncertain market risks becomes even more crucial. As such, because 3-month and 6-month Libor have been dropping towards overnight levels and therefore squeezing returns, there is no value going beyond six month maturities unless they are specific bonds we have selected because of conviction.
Fund management is ultimately about balancing risk and return within the relevant asset class to deliver value for your investors. As a result, it is optimal to be able to leverage different sources of return – and thus balance risk – within a portfolio. This ensures the fund manager is not overly reliant on one single factor. A prime example of this at Canada Life Investments lies within our LF Canlife Global Macro Bond Fund, which invests in high-quality, developed market, investment grade and sovereign bonds.
To mark the fourth anniversary of pension freedoms on April 6th, we consider how investing at income drawdown is evolving today given Brexit and other growing uncertainties affecting the markets. Over the years we have discussed the following: move from growth to income funds since the latter offers higher yields that can be taken as income and with potential growth on top; invest in low risk in the beginning since it offers a potentially smoother ride with a lower chance of having the pot hit at an early stage; and last but not least consider allocating to some higher risk assets to help add potential for better returns.
Geopolitics and sentiment shifts in 2018 whiplashed investors and the fourth quarter of the year especially gave new meaning to ‘risk-on’ and ‘risk-off’ trades within the global equities market. To put this into context, when investor sentiment is optimistic about the economy, geopolitics and industry, riskier assets tend to get pricier – ‘risk-on’. Conversely, when uncertainty and negativity hits the market, investors tend to sell riskier assets and buy ‘safer’ ones that are typically less vulnerable to weakening investor confidence – ‘risk-off’.