Market review
The global equity market in the third quarter presented a mixed picture, with varying performances across different regions and sectors. Overall, the Bloomberg Developed Markets Large & Mid Cap Total Return Index, a broad measure of global equity performance, recorded a modest gain of 6.4% for the quarter when measured in US dollars.
For UK investors, currency fluctuations played a significant role in determining returns. Sterling showed strength against the US dollar during this period, appreciating by approximately 5.8%. This currency movement dampened returns to 0% for UK-based investors when converted back to pounds.
There were strong performances in the utilities and real estate sectors. However, these gains were partially offset by weaknesses in the energy and technology sectors, as oil prices declined and concerns about the sustainability of AI chip demand emerged. That withstanding, the Federal Reserve (Fed) decided to cut interest rates by 50bps from 5.5% to 5.0%, a sign that it is more concerned with the economic slowdown than inflation persisting.
Emerging markets outperformed developed markets, with the Bloomberg Emerging Markets Large & Mid Cap Index rising 3.2%, driven by hope surrounding an economic stimulus in China.
Fund activity
The fund delivered a flat return that slightly underperformed the benchmark. During the quarter we added exposure to China through an ETF and also added manufacturer Bridgestone to the portfolio. We are positioned for an economic slowdown and peak hawkishness from central banks with a fairly neutral stance on value versus growth compared to the market. That said, as the Magnificent Seven grow their weight in the index the index is drifting towards the growth factor.
The most notable sector positions are the overweight to healthcare, consumer staples and discretionary and the underweight to technology. We have maintained exposure to nuclear power companies, which we see as a long-term theme. The stock selection gain was from Alibaba, Walmart and Yum China. Edwards Lifesciences and ASML detracted from performance. When looking at the regional breakdown, the UK and Asia drove performance.
Outlook
Looking ahead, UK investors should remain vigilant of several factors that could impact the US market in the coming months. The Fed’s stance on interest rates, ongoing geopolitical tensions in the Middle East which could affect commodity prices, and the approaching US presidential election, are all potential sources of market volatility. While the US market has shown resilience in Q3 2024, diversification remains crucial for UK investors seeking to balance risk and reward in their portfolios. The US is home to some of the best companies in the world, but everything has a price. If the global equity market were to broaden out, that could open investment avenues in Europe and China, particularly as valuations for these regions are much lower than other major markets.
Important Information
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.
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 Asset Management. 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 in the literature section.
