BY CRAIG RIPPE, HEAD OF UK EQUITIES
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. This proved to be bad for defensive stocks in September, as long bond yields moved up sharply, putting pressure on their somewhat elevated valuations. Instead, it was more cyclical stocks that outperformed, as the economy remained solid. This was highlighted by the UK’s Manufacturing Purchasing Manager’s Index (PMI) continuing to show expansion in September, with a reading of 55.9.
This benefited the performance of the CF Canlife UK Equity Income Fund, as it enjoyed a strong month of returns. Our position in Ashtead, for example, continued to beat earnings expectations whilst Johnson Matthey’s battery business also announced it was beating consensus. Elsewhere, our overweight in mid-cap companies – a space in which we believe is an excellent source of unusual dividends – also boosted performance as sterling strength hindered the mega and large-cap names. In terms of portfolio activity, we added a little to Barclays during the month – trimming Compass Group at the same time – to tilt the Fund slightly more towards stocks that benefit from higher rates. Looking at other aspects of the portfolio, our gas and water utilities have been poor performers so far in 2017. However, they are a contrarian play that are incredibly cheap and we believe that once the political fallout settles, they can begin to re-rate. Our holding in Centrica for example, gives us a 7% yield – twice that of the market.
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.
CLI00959 Expiry 15 January 2018