can fixed income be defensive with - microsoft · source: bank of england, morningstar direct &...

For professional adviser use only

CAN FIXED INCOME BE DEFENSIVE WITH RISING RATES?

Fixed income in defensive multi-asset funds

September 2018

Andrew Morris

Sales Manager

3

LEARNING OUTCOMES

© 2018 Canada Life Investments

• Fixed income market recap

– Trump

– A brief history in interest rates

– Brexit

• Will the future follow the past? Views from Canada Life Investments

• Which areas of fixed income can help a defensive portfolio?

• How Canada Life Investments is currently allocating fixed income within multi-asset funds

4

MARKET RECAP


http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwivvsLagojRAhUD1RoKHfkfCnYQjRwIBw&url=http://www.pccskolgpo.com/IntrestRate.aspx&bvm=bv.142059868,d.ZWM&psig=AFQjCNEYVatEQIhVy5mlSux-aIXh9AyXCg&ust=1482503624325742

5

THE TRUMP EFFECT


6

A BRIEF HISTORY: UK INTEREST RATES

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

-1.6000

-1.1000

-0.6000

-0.1000

0.4000

0.9000

1.4000

6 M

on

th R

ollin

g P

erf

orm

an

ce

(%

)

Inte

rest

Ra

te C

ha

nge

(%

)

BBgBarc Sterling Agg Corp TR GBP BBgBarc Sterling Gilts TR GBP Rate change

-3.3

7.5

-1.1

5.3

-0.5

2.8

-0.6

-3.3

5.4

-3.5

5.9

-0.4

9.0

-1.9

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

6 M

on

th R

ollin

g P

erf

orm

an

ce

(%

)

BBgBarc Sterling Agg Corp TR GBP BBgBarc Sterling Gilts TR GBP

Source: Morningstar, time period shown 30/09/1999 to 30/11/2017. Performance rolling 6 month. For illustrative purposes only.

7

BREXIT AND FIXED INCOME


-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Pe

rfo

rma

nce

Gro

wth

(%

)

Performance Since Rate Change Reversal

BBgBarc Sterling Agg Corp TR GBP BBgBarc Sterling Gilts TR GBP

Source: Morningstar, time period shown 01/11/2017 to 31/07/2018.. For illustrative purposes only.

8

FIXED INCOME MOVING FORWARD


• Negotiation tactic

• A lot of bark

• Midterm elections

• Economy is good

• Safety in Gilts

• Sterling could fall

• Impact on global fixed

income holdings

• Ties with Europe

• Good for corporates

• Rally in sterling

Hard Brexit Soft Brexit

9

WHERE TO BE IN FIXED INCOME


UK Property

19.0%

Corporate Bonds

19.0%

UK Equity

Income

25.5%

Short Duration

Corporate Bonds

17.0%

UK

Government

Bonds 19.0%

Source: Canada Life Investments. LF Canlife Managed 0%-35% holdings as at 31/07/2018. For illustrative purposes only.

Cash

0.5%

10

CORPORATE BONDS – WHERE TO BE


• Sectors that benefit from interest rate rises

• Active

• Shorter duration allocation

0

20

40

60

80

100

120

-40

-30

-20

-10

0

10

20

30

Financials Collateralised Non-financials Cash Sovereigns & sub-

sovereigns

Sp

rea

d (

bp

s)

Re

lati

ve o

ve

r/u

nd

erw

eig

ht

(%)

Over/underweight (%) Spread

Source: Canada Life Investments (reflective of the holdings of the LF Canlife Short Duration Corporate Bond Fund) and Markit, as at 31/12/17. Relative positioning =

the Fund’s % exposure compared to that of the iBoxx 1-5 Year Index for each sector. Spread based on Index spread over the 1-5 gilt yield curve

SHORT DURATION – OFFSETTING INTEREST RATE RISK

-1%

-5%

-10%

-20%

1 year

duration

5 year

duration

10 year

duration

20 year

duration

1% Interest Rate Increase

1%

5%

10%

20%

1 year

duration

5 year

duration

10 year

duration

20 year

duration

1% Interest Rate Decrease

The Rule of One

-1.6000

-1.1000

-0.6000

-0.1000

0.4000

0.9000

1.4000

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Inte

rest

Ra

te C

ha

nge

(%

)

6 M

on

th R

ollin

g P

erf

orm

an

ce

(%

)

Interest Rate Change and Performance of Bonds

BBgBarc Sterling Agg Corp TR GBP BBgBarc Sterling Gilts TR GBP BBgBarc Sterling Agg 1-3 Yr TR GBP Rate change

Source: Morningstar, time period shown 30/09/1999 to 30/11/2017. Performance rolling 6 month. For illustrative purposes only. For illustrative purposes only.

12

GILTS – A DEFENSIVE HOLDING


UK gilts

Average total return in years of

rising rates

6.2%


flat rates

6.5%


falling rates

13.8%

0

2

4

6

8

10

12

14

16

18

UK gilts UK equities

Vo

lati

lity

(%

)

Annualised volatility since 1976

Source: Bank of England, Morningstar Direct & Canada Life Investments research, as at 30/04/18. . For illustrative purposes only.

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.

13

LF CANLIFE 0%-35% MANAGED FUND INVESTMENT PHILOSOPHY


WELL RESOURCED

AND EXPERIENCED

TEAM

STRAIGHT FORWARD

INVESTMENT PROPOSITIONS

SCALABLE INVESTMENT

PROCESS

FOCUS ON DOWNSIDE

RISK PROTECTION

Underlying Fund Management

LF Canlife 0%-35% Fund Manager Focus

DAMPEN DOWN

VOLATILITY & FLUCTUATIONS

DIVERSIFIED

AIM TO DELIVER STEADY

GROWTH AND INCOME

14

LF CANLIFE MANAGED 0%-35% FUND


• Managing duration of our fixed income holding

• Adjusting the duration based on short and medium term market views

• Only invest in sterling denominated assets

• Mitigates direct foreign currency risk

• Diversifies in asset classes with offer true diversification

• Low cost, active management

• In-house expertise in fixed income, property, equities and multi asset

Craig Rippe Head of Multi-Asset and Co-Manager of

the Managed 0-35 Fund

David Marchant CIO, Canada Life Limited, MD, Canada

Life Asset Management Limited and Co-

Manager of the Managed 0-35 Fund

15

LF CANLIFE MANAGED 0%-35% FUND – ASSET CLASS BREAKDOWN


LF Canlife UK

Property ACS Fund

19.0%

LF Canlife Corporate

Bond Fund

19.0%

LF Canlife UK Equity

Income Fund

25.5%

LF Canlife Short

Duration Corporate

Bond Fund

17.0%

Source: Canada Life Investments, as at 31/07/18.

UK Fixed Income & Cash 58%

UK Equities 26%

UK Commercial Property 16%

50% - 70%

20% - 30%

10% - 20%

Target asset

allocations2

Asset

allocation

parameters

Fund breakdown

2 As at 26/07/18. These are on a look through basis of the assets in the

underlying funds.

Cash

0.5%

LF Canlife UK

Government

Bond Fund

19.0%

16

CANLIFE MANAGED (0%-35% SHARES) PENSION FUND – VOLATILITY


Source: Morningstar, as at 30/06/2018 over a 3 year period. 1 Canlife Managed (0% - 35% shares) 4 Pen. 2 Note that the sector figures are sector averages.

Fund Name Monthly standard deviation

of returns (%)

Canlife Managed (0-35% Shares) Pension Fund1 0.92%

ABI Mixed investment (0-35% Shares) Pension Sector2 1.26%

ABI UK Gilt Pension Sector2 1.96%

ABI Mixed investment (40-85% Shares) Pension Sector2 2.22%

ABI UK All Companies Pension Sector2 3.10%

ABI Global Emerging Market Equities Pension Sector2 4.94%

For illustrative purposes only

17

CANLIFE MANAGED (0%-35% SHARES) LIFE FUNDS – PERFORMANCE


Source: Morningstar, bid to bid, with income re-invested, as at 30/06/18. Figures for Canlife - Managed (0% - 35% Shares) LS4 Acc in GB and (ABI) Mixed Investment 0%-35% Shares

(Life). Key: green shaded sectors show returns above sector. 1 Sector average.

1y 3y 5y

Canlife Managed (0-35% Shares) Life 3.43% 14.25% 32.79%

ABI Mixed investment (0-35% Shares) Shares1 0.83% 10.58% 20.54%

Discrete One Year Performance to 30th June 2018 2017 2016 2015 2014

Canlife Managed (0-35% Shares) Life 3.43% 6.77% 3.45% 8.37% 7.25%

ABI Mixed investment (0-35% Shares) Shares1 0.83% 5.65% 3.79% 4.42% 4.39%



Ongoing Charge Figures (OCF)

This is not representative of returns for the LF Canlife Managed 0%-35% Fund and is for illustrative

purposes only.

RETIREMENT ADVANTAGE

TRA FUNDS

OEIC FUNDS

C Share Class

LIFE FUNDS

(Life Series 5 Acc)

CANLIFE PENSION FUNDS

(Pension Series 5 Acc)

Canlife Managed 0%-35% 0.31% 0.78% 0.31% 0.30%

18

MULTI-PERIOD RELATIVE RETURN SUCCESS


Canlife Managed 0%-35% 4 Life Vs (ABI) Mixed Investment 0%-35% Share (Life)

Rolling

Period

Lookback Period

Average Relative Return (%) Hit Ratio (%)

3yrs 4yrs 5yrs 10yrs 3yrs 4yrs 5yrs 10yrs

6

months 0.2 0.7 0.8 0.5 74% 81% 85% 77%

1yr 0.0 1.1 1.6 1.0 52% 68% 76% 70%

2yrs 0.0 1.0 3.0 2.8 46% 72% 81% 82%

3yrs 3.4 3.6 4.6 5.1 100% 100% 100% 96%

Chart shows percentage chance (Hit Ratio) of the Canlife Managed 0%-35% 4 Life fund outperforming the (ABI) Mixed Investment 0%-35%

Share (Life) sector if invested in any month and held for 6 months, 1,2 or 3yrs in the last 3,4,5 or 10 year period as well as the excess

cumulative return in those same time periods (average relative return) 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.

Source: Morningstar as of 30/06/2018. Figures are net of fund fees. The above performance figures are for the Canlife Managed (Canlife Managed

(0% - 35% Shares) Life Series 4 which launched 28/02/03. Bid to bid income re-invested.

This is not representative of returns for the LF Canlife Managed 0%-35% Fund and is for illustrative

purposes only.

19

CANLIFE MANAGED (0%-35%) 4 LIFE PERFORMANCE VS SECTOR AND PRUFUND CAUTIOUS FUND S5


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Pe

rce

nta

ge

Gro

wth

(%

)

Canlife Managed (0% - 35% shs) 4 Life (ABI) Mixed Investment 0%-35% Shares (Life) PruFund Cautious Fund S5 Gross

Source: Morningstar as of 31/07/2018. The above performance figures are for the Canlife Managed (Canlife Managed (0% - 35% Shares) Life

Series 4 which launched 28/02/03. Bid to bid income re-invested. Note, the Canlife Managed (0%-35%) 4 Life sector is the ABI Mixed Investment 0-

35% Shares (life) and the PruFund Cautious Fund S5 sector is the ABI Unclassified sector.

For illustrative purposes only



SUPPORT AND DUE DILIGENCE

© 2018 Canada Life Investments 20

MI & Reports Available Online Hard

Copies

Monthly performance updates *

Monthly factsheets *

Adviser sales aid *

Suitability letter *

Online latest prices and

performance

Fund Manager insights

Ad hoc Fund Manager blogs &

webinars

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comparison

Underlying fund information

* Available on request

21

LF CANLIFE MANAGED 0%-35% FUND – SUMMARY


• Focus to reduce volatility without being out of the market

• Simple strategy which advisers and clients can understand

• Fully transparent

• Low cost, active management

• Diversified – Bonds/Equity/Physical Property/Cash Market

22

IMPORTANT INFORMATION

© 2018 Canada Life Investments 22



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.

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 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. 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.

Data Source - © 2018 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to

Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate,

complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any

use of this information.

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. CLI01284 – Expiry 31/12/2018

can fixed income be defensive with - microsoft · source: bank of england, morningstar direct &...

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