BY MIKE COUNT, SENIOR FUND MANAGER
Credit spreads tightened across the board in December as cash rich investors that had been sitting on the side lines came into the market. Following a busy year, there was little issuance in the sterling corporate market however, as newsflow from the continent dominated headlines. This saw Greek 10 year bond yields fall sharply, whilst Portugal also regained its investment grade credit rating.
This was reflective of Europe’s continued strong economic growth, whilst the UK also continued to deliver relatively strong Gross Domestic Product (GDP) growth. In the US, the Trump administration’s tax reform bill was passed by both Houses, whilst the Federal Reserve also raised rates for the fifth time in this cycle. All this points towards a continuation of the synchronised global economic recovery, which we believe will continue through 2018.
This economic environment should prove supportive of corporate bonds, although we are cognisant that higher inflation and further rate hikes will put further pressure on fixed income prices. However, we do not believe this is a risk at present, which lends itself to the question, when should one leave the party and adopt a more defensive stance. In this respect, the funds have always had a slightly defensive bias, given our focus on strong credits and capital preservation. However, were these risks to increase, we would look to rotate some parts of the portfolios into higher credits, whilst maintaining our short duration stance.
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.
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.
CLI01074 Expiry on 15 April 2018