BY DAVID ARNAUD, SENIOR FUND MANAGER & KSHITIJ SINHA, FUND MANAGER
May was reminiscent of the 2011 European sovereign debt crisis as the formation of a populist government in Italy sent yields on peripheral European government bonds higher, with yields on 10-year BTPs rising from 2.40% to 3.20% in the space of two days. It was a somewhat brutal move – which also caused some stress in other asset classes – before settling down later in the month. As a result, global fixed income markets saw a ‘flight to quality’ as government bonds outperformed corporate bonds, with UK gilts and German bunds leading the way.
Elsewhere, there was also some US-driven volatility as President Trump announced the imposition of tariffs on steel and aluminium imports from its main trading partners. However, despite all this political noise, the global economic backdrop remains encouraging with consumption and activity indicators in expansionary territory. In the US, the latest Chicago PMI data came in at 62.7, whilst in the Eurozone, recent inflation data was also ahead of consensus. Therefore, we continue to expect yields to rise modestly through to year-end.
Looking forward, we are confident in the Fund’s positioning and its overweight in corporate bonds, in particular in financials. However, we remain mindful of the fact that a more defensive positioning may be required later in the year, particularly if the political environment continues to impact markets.
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.
CLI01230 Expiry on 15 September 2018