BY MIKE COUNT, SENIOR FUND MANAGER
The general ‘risk-off’ trade continued globally in March, which was reflected in the performance of sterling fixed income assets. As a result, corporate bonds underperformed their government counterparts, with investors preferring traditional ‘safe haven’ assets in the current environment. This came despite global indicators remaining well within expansion territory.
Therefore, we believe the fundamentals still remain supportive for corporate bonds. The last five years has shown us that any dips in the market provide buying opportunities, but we are slightly more cautious given that we are nearing the end of the economic cycle. From a sector perspective, we still believe the high yielding sectors – such as insurance and collateralised bonds – are currently providing the most attractive opportunities, particularly as we believe spreads are unlikely to change much over the course of 2018.
Looking forward, the market has priced in a near certain rate hike from the Bank of England in May. Yields have already increased year-to-date – the 2 year UK gilt yield has moved from 0.44% to 0.82% for example – and we still think the risks are skewed to higher rather than lower yields. As a result, we have increased the allocation of the LF Canlife Short Duration Corporate Bond Fund to floating rate notes (FRNs) to c. 20% of the portfolio. The LF Canlife Corporate Bond Fund has also retained its short duration stance versus the benchmark and preference for strong, sustainable credits in sectors that offer an attractive spread profile.
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.
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.
CLI01163 Expiry on 15 July 2018