BY KIM LEE, SENIOR FUND MANAGER
February was a volatile month for all asset classes, as higher-than-expected inflation in the US in particular spooked investors. Bond yields duly rose and equity markets sold-off globally. However, Asian equities performed relatively solidly, led by the ASEAN nations which had lagged the China-led rally last year. This was a benefit to the Fund, as we have spent the previous months reducing our Chinese exposure, instead favouring more value-style ASEAN stocks. This was because we believed rising interest rates and bond yields would favour these areas of the market and they performed strongly as expected.
As a result, we trimmed some of our exposure towards the end of February, particularly in Thailand, locking in profits for the Fund. Instead, following a correction in China, we started to rebuild our exposure here with a focus on our favoured bottom-up stories. This included A2 Milk, which has done very well recently due to its tie-up with New Zealand-based dairy co-operative Fonterra. Indeed, the consumer sector as a whole in China has held up well, particularly through stocks that exhibit pricing power and are thus more inflation-proof. Elsewhere, we also took park in the initial public offering (IPO) of property management company A-Living.
Looking forward, we believe that the initial sell-off was primarily driven by foreign investors, who were concerned about higher interest rates and inflation in the US, which was exacerbated by thin volumes due to Chinese New Year. However, this did allow us to rebuild exposure to very attractive areas of the market at reasonable valuations. The potential removal of term limits to allow the re-election of President Xi Jingping will dominate newsflow in the coming months, but we believe his economic reforms will continue to underpin the long-term structural growth of the Chinese 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. Currency fluctuations can also affect performance. Due to the underlying assets held, the price of the Fund is classed as having above average to high volatility.
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.
CLI01127 Expiry on 15 June 2018