Governments, governance & growth to value pivot


A year marked by politics, 2019 has given us lots of new types of risk to think about. As the trade war lingers, investors and governments alike will be concerned with the accumulating effects, as well as Trump’s associated tweets, have on the markets. Earlier this year, analysts at JPMorgan created a tweet-o-meter called the “Volfefe Index” to quantify President Trump’s market-moving tweets. Named after Trump’s mysterious covfefe tweet from May 2017, the analysts said the Index showed that words such as “China”, “billion”, “products”, “Democrats” and “great” have been most likely to affect US bond prices.

From WeWork to Woodford, governance issues have also brought new meaning to the word risk. Take the tech giants: with the consumer data they hold, and the influence they have because of it, we expect them to become more scrutinised by both investors and governments. Whilst some value opportunities still exist, large cap tech stocks are plagued not only by these regulation concerns, but also tariffs on tech hardware and valuations on software. Indeed, as regulators missed the boat on Facebook’s impact on the 2016 US elections, they now will be eyeing whatever the company does. Tech giants do not have the trust that regulated businesses hold, and in our view Libra, Facebook’s proposed blockchain currency, is unlikely to be approved in the near future. That said, Microsoft and Alphabet remain in our LF Canlife Global Equity Fund’s top ten holdings due to their more attractive valuations, profitability and diverse business lines. 

The Fund has had a long-held value, contrarian bias, which has benefited from the recent growth to value pivot. These value stories exist in parts of the market which have been left behind by growth and momentum stories in recent years.

Source: Morningstar Direct, as at 30/11/19. MSCI World sub-index performance, in pound sterling

We have added to our cyclical exposure recently through the purchase of stocks, such as US-based Mohawk Industries, the world’s biggest flooring company. Mohawk’s market share speaks for itself: the only major quoted European competitors are Tarkett and Forbo, which are respectively a third and a tenth of the size of Mohawk. We believe this boils down to its exceptional management team led by Jeff Lorberbaum, who came in via the acquisition of his father’s company, Alladin Mills in 1994. As a result of this purchase his family owns 25% of Mohawk and he became CEO in 2001 at the age of 46. Given that he joined Alladin Mills in 1976 straight out of university and grew up watching his father run the business, he has basically been living and breathing the flooring business his entire life. Investing alongside someone with this much experience and, who has perpetuated his father’s legacy to become one of America’s richest men through the judicious expansion of Mohawk’s business, brings comfort to long-term holders of the shares.

However, as a cyclical business, the company has been under relentless pressure over the last five years as equity investors have shunned cyclical businesses in general and those linked to the housing market in particular. Furthermore, the stock took a big hit in July due to company-specific issues, which largely centred on what was deemed to be over-ambitious capex expansion. However, we took comfort from the fact this capex should start to bear fruit in future earnings and were able to initiate a position at an attractive valuation in September of this year, which has already generated upside. The stock is currently trading at a P/E ratio of 13x, compared to a 5 year average of 19x.

Source: Canada Life Investments research, December 2019.Note: A move down, e.g. from 8% to 6%, represents an increase in sales relative to capital expenditure

 Another year of political headlines and headwinds

While the equity markets have generated strong returns so far in 2019, the year probably will be remembered more for how it began. In a dramatic twist of monetary policy, the US Federal Reserve Bank started the year by stepping in to support markets following the brutal sell-off in the fourth quarter of 2018. Investors were concerned about the inversion of the yield curve for most of 2019, but given the absence of a US recession, the US consumer remained buoyant and we continue to be overweight US equities. Nevertheless, geopolitical uncertainties also continue to cloud the markets with no resolution to the US-China trade dispute or Brexit.

We are conscious that the politics at play are evolving, not resolving, and our Equities team will be closely following the US presidential candidates and the policies they propose, ahead of the election next November. We will be carefully monitoring economic data for further signs of deterioration as well, whilst continuing to focus on sustainable investments that are able to outperform through the cycle. Fiscal policy, which also played an influential role in the markets this year, is even more political since politicians are the ones who decide on it.

Important Information

The value of investments may fall as well as rise and investors may not get back the amount invested. 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 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

Data Source – © 2019 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

CLI01540 Expiry 31/12/2020



Sales Director, Discretionary & Group

LF Canlife Global Equity Fund

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