BY CRAIG RIPPE, HEAD OF UK EQUITIES
From a macro perspective, the world still remains an uncertain place. In the UK, inflation has softened and we have seen Sterling rise slightly against the dollar, yet significant political uncertainty continues in the background. Globally, things look somewhat healthier, with stronger-than-expected data emanating from China and rising commodity prices. We also saw a slightly more dovish tone from the US Federal Reserve in July, with the market now only giving a 50% chance to another rate rise in the next six months.
Therefore, it was sector and stock-specific news that dominated in July, particularly in the UK equity income space. The first big event followed the release of the results from AstraZeneca’s ‘Mystic’ lung cancer drug trial. Unfortunately the data showed that the drug failed to boost progression-free survival and the stock duly fell 15% in one day. The CF Canlife UK Equity Income Fund has a position in AstraZeneca, which we believe remains undervalued.
The other major event came from the US, as the Food & Drug Administration (FDA) announced a consultation into reducing the nicotine content of cigarettes in the US to non-addictive levels. This impacted British American Tobacco and Imperial Brands in the UK, which both fell 10%, despite the likelihood that earnings would not be particularly affected for several years. We have reduced our exposure to both stocks, however, given the risk of regulatory leakage to other countries, whilst it is also too soon to judge the long-term success of vapour and ‘heat-not-burn’ based replacement products.
However, there were also a number of positives during the month, with the energy and materials sectors in particular delivering solid outperformance. We have also done very well out of our broad financials exposure over the last 12 months, a theme which continued in July, with HSBC releasing strong numbers. On a stock-specific note, we were also pleased to see WorldPay bid for at a significant premium. Looking forward, the Fund will retain its quality bias, whilst gaining exposure to more value sectors and stocks at the margin.
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 contents of this article are not intended as investment advice.
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.
CLI00875 Expiry on 15 November 2017