BY EUGENE O'NEILL, SENIOR FUND MANAGER
Equities continued on their downward trend in March, as investor concerns around inflation and the future path of interest rates saw ‘safe haven’ assets such as government bonds outperform. However, we believe the underlying economy is fundamentally sound – despite some Brexit-related uncertainty – as the UK continues to be supported by the synchronised recovery in global growth.
Indeed, following March’s sell-off, UK equities have become astonishingly cheap on some metrics, which we believe highlights a significant value opportunity. In particular, the gap between the equity dividend yield and the ten year UK gilt yield is now the widest it has been since World War Two. This highlights just how cheap equities have become compared to bonds in the UK.
Within this environment, the LF Canlife UK Equity Income Fund continues to look for opportunities in sectors and stocks that are unloved and overlooked by the market. In March, we took a position in Hikma Pharmaceuticals, a generic drugs business focused on the Middle East and Africa. Although generics pricing has been severely hit in recent years, it is now trading at a valuation that discounts one part of its business as having no value. We do not believe this to be the case.
Looking forward, we believe there are a significant number of well-diversified, uncorrelated UK equity income stocks within the portfolio that leaves us well-set to outperform in 2018. The current environment has increased our focus on unearthing ‘special situation-style’ opportunities and this approach has paid dividends this year so far.
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.
CLI01170 Expiry 15 July 2018