BY BILL HARER, HEAD OF FIXED INCOME - CREDIT RESEARCH & UK LINKED FUNDS AND MIKE COUNT, SENIOR FUND MANAGER
The summer months are typically quieter than normal and August was no different for corporate bonds. The market continued to climb higher as yields ticked down, although spreads did widen slightly. As a result, government bonds outperformed corporates for the first time since March, as uncertainties surrounding the issues in North Korea saw investors lean towards government securities, despite the low returns on offer.
From a global macroeconomic perspective, we also saw some weaker numbers from the US as job growth came in below expectations. This put the prospect of further rate rises from the Federal Reserve in 2017 in doubt. European economic momentum continued apace however, with further strong growth from the Eurozone. In the UK – despite the ongoing Brexit overhang – Gross Domestic Product (GDP) growth has weakened slightly, but still remains well ahead of last year’s consensus forecasts.
There was very little activity undertaken by the funds during August, with trades only based on money coming in and out of the portfolios. We believe the current picture of modest but positive growth and slowly rising interest rates is a relatively benign operating environment for companies, which gives good fundamental support to corporate bonds. However, given our view that rates will rise in 2017, both funds are shorter in duration than their respective benchmarks and we do not expect this positioning to change in the near-future.
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. The content of this article is not intended as investment advice.
The information contained in this document is provided for use by institutional investors, professional investors and professional advisers and is not for onward distribution to, or to be relied upon by, private 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 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.
CLI00916 Expiry on 15 December 2017