BY MIKE COUNT, SENIOR FUND MANAGER
Sterling corporate bonds were significantly more volatile in February, as strong global growth, higher-than-expected US inflation and more hawkish central bank sentiment combined to send government bond yields significantly higher. However, equities endured the worst of the sell-off, with corporate and government bonds outperforming. Indeed, short duration corporate bonds saw only a marginally negative return for the month, highlighting their importance in protecting capital.
Despite the higher volatility and weaker asset prices that we have seen recently, the global economy remains robust and we believe it is likely to continue to surprise to the upside as the year progresses. This will also likely put further upward pressure on interest rates and government bond yields, although we expect further rises to be more contained and gradual than February’s spike.
From a corporate credit perspective, we believe the underlying global macroeconomic fundamentals will continue to support spreads, with a significant widening unlikely. However, sector and stock selection will be key in protecting capital as certain areas of the market are far more vulnerable, given they trade at spreads of just 30 basis points or less. As a result, they pose a risk of capital loss if interest rates increase in 2018.
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.
CLI01130 Expiry on 15 June 2018