Although the markets turned a different direction after the stormy end of Q4 2018, the same underlying risks have not changed. The US Federal Reserve’s sudden shift to a dovish monetary policy might be fuelling market rallies but this U-turn was more about financial market worries than real economic ones and the big question now for fund managers is whether there will be a recession in 2019 or 2020. While our view is that we are well into the later phase of the economic cycle, some of the classic leading indicators such as the inverted yield curve (which has a long track record of signalling a US recession) have been sending mixed messages for a while given years of quantitative easing. Consequentially, as equities tend to be a faster-moving asset class (and the fact that we just saw the longest bull-run in history) we feel it would be bold to be overweight in stocks and so our current strategy is to pull back thoughtfully and select carefully. For fixed income, we remain focused on short durations in selective corporate and US 2-year Treasury bonds.
Trends shaping the future
While mindful of what’s happening quarter to quarter multi-asset managers focus more on what pans out in the next three to ten years. Our radar screen, therefore, is not homed in on economic indicators alone not least since they also can lag and be arbitrary. For example, as employment statistics remain strong, underlying trends might actually prove that the labour force is evolving in a different way. Demographic trends – from ageing populations and how retirees are spending to the evolving divergence between the east and the west – tell us a lot about the future of inflation and growth. We also know from our discussions with Chief Executive Officers (CEOs) that many companies have held back on investment for the past six months or so. Several US corporates say they are not making more goods because they cannot find appropriately skilled labour or do not have robust enough machinery to make production faster and more efficient. However, the US-Sino trade war continues to be the main issue for companies because CEOs say they don’t know what the rules are going to be or how they might affect their businesses. Similarly, uncertainty surrounding Brexit is still causing UK corporates to hold off from investing or hiring.
Demographic trends evolve over long periods of time and have irreversible consequences for the global economy. Over the past century, for example, there has been a growing migration to cities, especially in the US and Western Europe, and the World Bank estimates that over 80% of global GDP is now generated in urban areas. We expect rapid urbanisation to spill over to the rest of the world as billions of people in Asia and Africa seek opportunities in megacities and this is already creating interesting opportunities for long term investors.
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.
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.
CLI01398 Expiry 30/06/2019