BY DAVID MARCHANT, MANAGING DIRECTOR & CHIEF INVESTMENT OFFICER
Markets wobbled in February as strong global growth contributed to rising inflation concerns on both sides of the Atlantic. As a result, interest rates are expected to rise sooner than the market originally predicted. This, combined with the ongoing withdrawal of quantitative easing (QE), saw government bond yields rise globally. Ten year US treasuries peaked at 2.95% late in the month, with ten year UK gilts also reaching 1.58%, the highest since early 2016. This put pressure on fixed income asset prices, as well as undermining the attractiveness of equities in the short-term.
Importantly, however, the underlying global growth dynamic remains positive, as the world is enjoying a synchronised economic recovery. Equity valuations are also now more appealing post February’s modest sell-off, with UK equities now yielding north of 4% and the European market more than 3% for example. These remain compelling compared to bond yields.
Despite February’s sell-off and the resulting volatility, our view has not changed. With a positive economic backdrop we prefer the outlook for equities, but remain committed to maintaining a diversified portfolio of assets. In the UK, our bias is towards high-quality, income-generating equities, whilst our fixed income exposure is focused on short duration corporate credit. This should deliver a competitive yield whilst also protecting the portfolio against further rises in interest rates and bond yields.
Overseas, Japanese and Asia Pacific equities have held up well, with our exposure to China and the ASEAN nations in particular benefiting the performance of the Portfolio Funds range. Another positive contributor has been property, which is delivering stable returns despite negative sentiment remaining in certain parts of the market. We continue to believe that high quality UK commercial property, let to good tenants, is an important diversifier for the funds as it is uncorrelated to equities and fixed income. In addition, attractive yields of 5%+ can continue to be sourced, offering an attractive income stream even with the absence of substantial capital growth.
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. The funds may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the funds. 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.
CLI01125 Expiry on 15 June 2017