The market environment
Following nearly a decade of central banks delivering a global programme of quantitative easing, asset prices have seen huge growth as investors have chased yield in an ever-lower yield world. However, the situation is now more nuanced. The US Federal Reserve (Fed) has embarked on a rate-rising cycle and more hawkish tones are emanating from the Bank of England and the European Central Bank. Combined with a global economy firing on all cylinders, this suggests rates are on the rise. However, geopolitical risks remain with any escalation in the North Korean situation, for example, likely to see investors flock back to safe haven assets.
Therefore, we believe a more strategic investment approach can succeed in this environment. The CF Canlife Strategic Return Fund, launched on 30 June 2014, is a globally diversified multi-asset fund that aims to achieve a positive return through varying market environments while maintaining a moderate level of volatility. Managed by PanAgora Asset Management, as part of our Global Partner series, investment decisions in the Fund are based on the allocation of risk to each asset class rather than the allocation of capital. PanAgora’s approach to risk balancing addresses the problem of risk concentration often seen in traditional portfolios. The result is a portfolio that aims to generate attractive returns with more stability and greater downside protection when compared to other, more concentrated, approaches to investing.
2017 so far
Given the uncertainty we have seen in 2017, how has this approach to risk balancing fared? The CF Canlife Strategic Return Fund has returned 5.13% so far year-to-date. In comparison, global equities have returned 7.44% in sterling terms, whilst global bonds have lost investors -2.02%.* The Fund was able to achieve this performance with a lower volatility profile and maximum drawdown than either asset class. Its exposure to global equities contributed to absolute performance, however, this positive return contribution was largely offset by exposure to fixed income and commodities. US large-cap and emerging market equities contributed the most, whilst our fixed income exposure detracted given the modest increase in bond yields. In terms of inflation-protected assets, commodities modestly detracted from performance, led by a decline in energy.
Throughout the past nine months, the Fund has increased its risk exposure to equities at the expense of fixed income and inflation protected assets. This is driven by PanAgora’s proprietary Dynamic Risk Allocation (DRA) methodology which uses a combination of valuation and technical signals to modestly adjust the Fund’s tactical risk positioning. PanAgora has also maintained a targeted risk exposure to the factor overlay, which is the return that investors earn from exposure to risk factors – value, momentum, carry and macro – that are known to deliver positive returns over time.
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. Currency fluctuations can also affect performance.
The CF Canlife Strategic Return Fund aims to achieve a positive return that is independent of prevailing economic or market conditions over a rolling period of at least 5 years. Capital is at risk and there is no guarantee that a positive return will be delivered over that or any time period. The Fund is almost wholly invested through derivatives and maintains high levels of UK government debt securities and cash which serve as margin or collateral on the derivative positions. Derivatives are complex instruments which may result in gains or losses that are greater than the original amount invested.
*Source: Performance figures from Morningstar, as at 29/09/17. Bid to bid, with net income re-invested for C share class. Indices used are the MSCI World Index (global equities) and the Citigroup World Government Bond Index (global bonds).
The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com.
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CLI00956 Expiry 5 October 2018