BY DAVID ARNAUD, SENIOR FUND MANAGER & KSHITIJ SINHA, FUND MANAGER
The US continued to perform strongly in the third quarter; with consumer spending in particular making a major contribution as a strong job market and tax cuts boosted household incomes. As a result, the US Federal Reserve increased rates by 0.25% in September, the third rise this year, whilst also targeting further hikes. This strong economy was reflected in the global fixed income market, with US corporates by some way the strongest performers.
However, performance was weaker in the Eurozone and the UK, as issues such as Brexit uncertainty and Italy’s confrontational attitude with the EU over its budget deficit weighed on sentiment. Nonetheless, given the rise in government bond yields in the third quarter, UK and Eurozone corporates also outperformed their respective government counterparts. This benefited the Fund given its overweight in credit.
This overweight is based on the fact that, despite ongoing geopolitical risks, the global economy remains sound. The US economy remains the standout performer, despite trade war rhetoric weighing on sentiment, and we have also continued to see above-trend growth in the UK, Europe and Japan.
From a performance perspective the Fund outperformed its benchmark in Q3 – given our positioning in credit – whilst our currency allocation also resulted in positive absolute performance. Looking forward, we expect the global economic recovery to continue, but we are keeping a close eye on macro indicators and relative spread levels, which may suggest a change in this view. If we were to expect growth to come under pressure, we would seek to rotate further parts of the portfolio higher up the credit quality spectrum to position for an expected flight to quality. At this stage, we renew our short duration positioning across the portfolio.
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.
CLI01305 Expiry on 31 January 2019