BY MIKE COUNT, SENIOR FUND MANAGER
Economic & market overview
After some initial risk aversion on global geopolitical concerns, corporate bond markets rallied strongly late in April – boosted by the results of the first round of the French presidential election.
European bond markets, particularly in France, performed well following the election result – which saw centrist Emmanuel Macron and far-right Marine Le Pen make it through to the final round. Markets rallied on expectations the pro-EU Macron would emerge victorious.
In the UK, politics hit the headlines once again, with UK Prime Minister Theresa May calling a snap election for 8 June. May’s Conservative Party has been miles ahead in polling for some time – with a comfortable lead over the Labour Party. At economic level, UK GDP growth came in at 0.3% for the first quarter, far below the Monetary Policy Committee’s 0.6% target. Retail sales also appear to be cooling as the year-on-year (YoY) increase fell from 4.1% to 2.6%. We should point out, however, that a rebalancing of the UK economy towards less consumption and more production is desirable if it can be managed.
While UK government bond yields ended the month largely unchanged, spreads for corporate bonds tightened slightly over the period.
The CF Canlife Corporate Bond Fund’s overweight position in the insurance sector was beneficial over the month, on allocation and credit selection. French giant AXA was a strong performer, boosted by the election result.
Trading was relatively limited over the month. We participated in a new eight year bond issuance from German auto group Volkswagen, while we also added positions in unloved UK high street retailer Next and telecom giant Vodafone.
Looking ahead, our outlook for corporate bonds remains constructive, despite low yield levels. While the end of the Bank of England’s (BoE) corporate bond buying programme has removed a buyer from the market, investors’ demand for credit remain robust.
The value of investments may fall as well as rise and investors may not get back the amount invested.
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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.
CLI00783 Expiry on 22 August 2017