BY DAVID ARNAUD, SENIOR FUND MANAGER & KSHITIJ SINHA, FUND MANAGER
June saw yields rise in the US, but fall everywhere else, as political risk in Italy and a step up in trade war rhetoric between the US and China concerned investors. As a result, the vast majority of the global corporate bond markets witnessed negative returns while government bonds benefited from a ‘flight to quality’ move. The long end also performed significantly better than the short end, as global yield curves continue to flatten. In our view – when combined with the somewhat indiscriminate selling of fixed income securities – this suggests that investors are currently more unwilling to hold risk assets.
However, this environment has enabled us to opportunistically pick up some good value issues. For example, higher beta sectors – such as insurance – have sold off despite the sector remaining fundamentally sound. We continue to believe that the risk/reward profile remains attractive and would highlight that historically it has one of the lowest default rates globally. As we move through time and these issues move towards par, we believe the Fund is well placed to outperform.
Elsewhere, we have also moved slightly more overweight in US dollar assets as the currency should continue to benefit from the US yield differential versus the rest of the world. We have also retained our short duration stance – and have similarly been increasing our cash weighting – reflecting our slightly more cautious outlook. Despite this, however, there is still value to be found. For example, a number of additional tier-1 (AT1) bonds in the financials space now yield more than the equivalent equity dividend yield.
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. Currency fluctuations can also affect performance.
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.
CLI01260 Expiry on 15 October 2018