Q4 2018 update: Changing climate

Bittersweet end to 2018

Due to a plethora of economic and political uncertainties our strategy in Q4 2018 proved to be diligent and our focus in Q1 2019 will continue to be on a more defensive positioning. December was particularly volatile given the market’s reaction to the US Federal Reserve’s fourth interest rate hike of the year and there seems to be no end to spread oscillations (and further widenings) across all sectors given Brexit, ongoing trade tensions between the US and China and slower global growth.

Although we managed to avoid problematic names such as General Electric (which we sold a year ago) and Pacific Gas & Electric (PG&E), attractive paybacks in corporate bonds were hard to come by in Q4’s increasingly volatile environment. For 2018 as a whole, we fared better in our Japanese Government Bond (JGB), US treasury and UK gilt holdings. Considering the rising macroeconomic and geopolitical risks, we now are reallocating and intend to lower our weightings in corporate credit.

Radar for Q1 2019

We remain more cautious on credit and rates not least considering the economic frictions between major powers and how such geo-political risks impact the markets. Even though we expect the Fed to make fewer interest rate rises than were previously forecasted, rising debt whether it is corporate or sovereign is also a concern and our main focus will be on avoiding potential pitfalls in this risky climate.

Despite the slower pace of growth in the US and Europe, many economic indicators are still solid and point towards a healthy growth rate this year. We predict GDP growth in developed economies to be supported by private consumption, wage rises and prospects for further relaxation in fiscal policies. This should put upward pressure on bond yields, especially at a time when central banks have committed themselves to normalising monetary policies by ending asset purchases and raising rates. We therefore renew our short duration positioning and focus more on higher quality names.

Important Information

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

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. Some Canada Life Investments funds may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the fund. The value of the property is based on the opinion of a valuer and is therefore subjective.

The Canada Life Investments blog page features images licensed from Getty Images International. These images shall not be downloaded, republished, retransmitted, reproduced or otherwise used in any way. Aside from the above, and unless otherwise stated, Canada Life retains copyright in and/or has a right to use all contents of this website (including text and graphics) and such contents shall not be copied, distributed, extracted or modified without the express prior written consent of Canada Life unless for private, non-commercial use.

CLI01348 Expiry 30 April 2019

David Arnaud

David Arnaud

Senior Fund Manager, Fixed Income

Kshitij Sinha

Kshitij Sinha

Fund Manager, Fixed Income

Contact Us

Do not fill this field

Loader image

Fields marked * are required