BY MIKE WILLANS, HEAD OF EQUITIES & BIMAL PATEL, FUND MANAGER
Global equity markets were largely strong in Q3 2018, with gains in the US and Japan offsetting declines in Asia Pacific and the UK. In the US, markets have been driven higher by strong earnings growth and a persistently higher price-to-earnings ratio (P/E) multiple relative to other regions. However, Asian markets struggled to cope with tariffs imposed by the US.
In the UK, consumption seems to be more resilient than many expected, despite the Brexit uncertainty, although investors remain very cautious. In the continent, excessive debt levels and political uncertainty in Italy worried European markets. Italy has a debt/gross domestic product (GDP) ratio of approximately 130%. To put this into content, Germany has a ratio of 65% and France has ratio of about 100%.
In the third quarter the LF Canlife Global Equity Fund returned 3.6% in sterling terms, versus 6.4% for the benchmark. This was predominantly driven by the relentless outperformance of technology and other growth style stocks. Given the Fund’s long-held value bias, we were not surprised at the underperformance but remain convinced that the portfolio is well-positioned to outperform over the long-term, supported by a rising interest rate and bond yield environment.
As a result, there was not a great deal of Fund activity, with our largest sector overweights remaining in the consumer staples and healthcare sectors. The Fund’s largest underweight is in consumer discretionary. However, some of our sector positioning optically changed as there were changes to the GICS sector classifications at the end of September. The telecommunications sector has been replaced with the communication services sector. This new sector also contains some gaming, media and social media companies.
Looking forward, we retain a heavy weighting towards US equities given that the economy has been buoyed by the reduction in tax rates and this is feeding through into corporate earnings growth. Japan is also favoured as the market is cheap and often performs well in later-cycle market phases, which we believe we are undoubtedly entering.
However, uncertainty still surrounds the UK, although these Brexit worries are partially offset by a strong dividend yield and overall attractive valuation. Risks also remain in Asia due to trade war concerns and in rising European populism, but we are yet to see this have a significant impact on the growth outlook.
Source: Morningstar Direct, as at 30/09/18. Performance of the C Acc share class, in pound sterling, bid to bid with net income reinvested.
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. 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 www.canadalifeinvestments.com.
Data Source – © 2018 Morningstar, bid to bid with income re-invested for C share class. 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.
CLI01297 Expiry on 31 January 2019