BY DAVID MARCHANT, MANAGING DIRECTOR & CHIEF INVESTMENT OFFICER
Despite further geopolitical shocks, such as Catalonia’s attempted declaration of independence, markets continued to rise in October as the synchronised global economic recovery continued, despite the best efforts of politicians to derail it. This was evident even in the Eurozone, as Gross Domestic Product (GDP) growth is forecast to reach 2.2% for 2017 as a whole, the highest in a decade. Closer to home, we saw UK growth remain resilient boosted by a sharp pick-up in manufacturing, whilst the US and Japan also surprised on the upside.
Overall, this global growth was beneficial for the UK and for the equity market in particular. This is because some 80% of the revenues generated by UK companies come from overseas, whilst the fact the domestic UK economy has remained so resilient benefited other parts of the market, such as mid-cap companies. In addition, we saw positive corporate results from UK companies, which supported the market from a bottom-up perspective. Our exposure to UK equities is gained via the CF Canlife UK Equity Income Fund, which maintains exposure to both large-cap international earners and more mid-cap, domestic names.
Following a difficult month for fixed income assets in September, we also saw positive returns from our sterling corporate bond holdings. UK corporate bonds once again outperformed gilts as positive economic news continued to see spreads tighten amidst a relatively benign operating environment for companies. In addition, our exposure to UK commercial property continued to provide stability and an attractive yield through our diversified portfolio of assets.
Looking forward, following the Bank of England’s recent 0.25% interest rate rise, we believe there is the potential for one further hike in 2018, but as the impact of sterling’s depreciation fades inflation concerns should also ease. This should take the pressure off the Monetary Policy Committee (MPC). Therefore, we remain positive on the outlook for corporate credit, despite the slightly tighter monetary policy outlook both in the UK and globally. In equities, given the economic outlook the recent strength of the market makes sense. However, given the geopolitical uncertainty apparent, we continue to favour the more defensive and income-generating characteristics of UK equity income stocks over their growth counterparts.
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 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. The fund 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.
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.
CLI001007 Expiry 15 February 2018