BY DAVID MARCHANT, MANAGING DIRECTOR & CHIEF INVESTMENT OFFICER
Equity and bond markets struggled in the third quarter as investors dealt with a number of contrasting issues, both geopolitical and economic in nature. In the emerging markets we can began to see the first signs of a currency crisis in countries such as Turkey which, if it spreads, could have an impact on the outlook for global growth. In the developed world, inflation remains stubbornly high in the US and UK, which has caused fears that interest rates could be hiked faster than expected, particularly in the US.
Combined with Brexit uncertainty, trade war rhetoric, the rise of Italian populism and excessive valuations in the more ‘high growth’ areas of the market this resulted in both equities and bonds selling off in the third quarter. For example, 10 year UK gilt yields moved from 1.2% in July to 1.6% in September, the highest levels seen since 2016. The LF Canlife Managed 0%-35% Fund is positioned more in corporate bonds – which outperformed – as well as maintaining a short duration stance, so we were able to withstand this rise in yields. The commercial property market also delivered stability, with industrial units in particular continuing to perform well.
However, UK equities sold off sharply, which resulted in a negative absolute performance for the quarter. We are ten years into a bull market and are arguably late in the cycle. As a result, any negative sentiment is weighing more heavily on the equity market and we were due a correction at some point. However, we still remain positive on equities relative to fixed income, although returns are likely to be more subdued in the future. As a result, we have maintained our more defensive, income-orientated equity positioning. The UK market remains attractively valued, with a supportive dividend yield which we believe will continue to underpin returns.
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. The fund may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the fund. The value of the property is based on the opinion of a valuer and is therefore subjective.
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.
CLI01307 Expiry 31 January 2019