BY NIGEL KENNETT, SENIOR FUND MANAGER
The FTSE All-Share Index was relatively flat during April as markets adopted a ‘risk-off’ approach following the announcement of a snap UK General Election on the 8 June. This has contributed further political uncertainty – in association with Brexit – which has seen investors leave their money on the sidelines.
It was, however, a good month for the CF Canlife UK Equity Fund, with the portfolio outperforming the market. Like many, we have taken some risk off the table in recent months, given the uncertain political backdrop. However, this has not diminished our belief in the structural growth themes in which we have conviction and which continue to make-up the bulk of the portfolio.
For example, the Fund also continues to be overweight in housebuilders, which we believe will be long-term beneficiaries of the chronic supply/demand imbalance for housing in the UK. Although we recognise that valuations in London may be stretched, we believe that diligent stockpicking can still unearth attractive opportunities. Stocks such as Bellway offer national exposure, the company is growing its land bank and delivered excellent revenue and profits growth in its March results. Furthermore, its valuation remains attractive and forecast revenue growth remains strong for 2017 and 2018. Bellway was one of our top performers in April alongside building materials manufacturer Marshalls, another company we expect to be a beneficiary of the UK’s housing market and an increase in infrastructure spend.
Elsewhere, we also benefited from adding to our position in Lloyds, which performed strongly. Financials in general outperformed, although we do retain an underweight to the group. Our select positions within the space sit in the Fund’s tactical bucket. Although a steepening yield curve is likely to increase short-term profitability, we still have significant concerns over the banking sector’s earnings quality. Associated British Foods was another contributor to outperformance following strong first half profits, whilst we continued to see strength from British American Tobacco (BAT), a long-term core holding. We did however slightly trim our position in BAT, locking in some profits.
From a macro perspective the oil price was weak in April and the Fund benefited from being underweight in energy stocks. In general, we expect commodity prices to remain volatile in general and we are thus comfortable allocating the portfolio more to areas which are supported by underlying growth trends.
Elsewhere we sold our holding in Unilever, as we feel the bid offer and ensuing strategic review has left the company fully valued for now, with good news now priced in. We also significantly reduced our holding in BT, following the news of irregularities in its Italian division.
Overall, the Fund continues to favour high quality, structural winners in areas such as e-commerce, construction, defence and pharmaceuticals. Amidst the volatility we are likely to witness in markets for the remainder of this year, we believe these areas of the market are well-placed to outperform.
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 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.
CLI00777 Expiry on 22 August 2017