BY NIGEL KENNETT, SENIOR FUND MANAGER
UK equities posted a slightly negative return in September, a month in which newsflow was dominated by the increased likelihood of interest rates being raised from 0.25%. We would say that there is still no sign of the UK economy overheating, but the market has still predicted a November rate rise with near certainty, following recent hawkish comments from Bank of England (BoE) Governor Mark Carney.
Against this backdrop, the CF Canlife UK Equity Fund performed strongly due to its quality, structural growth bias. For example, our holding in WH Smith contributed significantly to the Fund’s return, as its travel business continued to deliver excellent numbers. Within financials Lloyds was also an outperformer, supported by the prospect of higher interest rates and bond yields. Another positive for the portfolio was our position in Aveva, which rose strongly on the back of a takeover bid from Schneider Electric.
We did, however, make a number of changes to the portfolio in September. This included rotating some of our defensive exposure by trimming our positions in BAT and Reckitt Benckiser. Instead we initiated a position in Diageo, given our more positive outlook for alcohol over tobacco, whilst Reckitt Benckiser is yet to fully integrate Mead Johnson, which is causing some issues. Elsewhere, we introduced insurer Lancashire to the portfolio, which we expect to benefit from higher rates.
Industrials also saw some changes as we added to defence manufacturer Ultra Electronics and flexible workspace provider IWG. Formerly known as Regus, IWG is set to benefit from the structural growth in flexible co-working spaces and we expect the business to win some significant contracts in the US. Given the current uncertain backdrop within the domestic UK economy, the CF Canlife UK Equity Fund continues to be focused on companies such as IWG, which retain their own stock-specific drivers.
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.
CLI00972 Expiry on 15 January 2018