Market review
The first quarter of 2024 was buoyant for global equity markets. Returns were led by the US and, most notably, the Magnificent Seven group of high-performing technology stocks, which collectively accounted for about a quarter of US market cap by quarter’s end. Nvidia, in particular, saw returns of 81% between January and March off the back of bullish sentiment around artificial intelligence (AI).
While sentiment in general also remained bullish, supported by growing expectations that most major economies will avoid a meaningful recession, inflation proved stickier than expected in these economies. In the US, for instance, the Consumer Price Index (CPI) remained above target across December, January and February, with the earliest anticipated rate cut pushed back to beyond June. Similarly in the UK, CPI dropped to 3.4% in February but remains higher than the target of 2%, with markets also projecting rate cuts beginning in June.
Fund activity
The fund performed well on an absolute basis but slightly underperformed its benchmark during the quarter.
Notable contributors to absolute performance at the country level included Taiwan, driven in large part by semiconductor maker TSMC. By sector, our underweight position in financials contributed to relative returns as the sector faced volatility due to changes in expectations around rate cuts. Detractors included our underweight holdings in technology, specifically Nvidia.
While the fund maintained its core positioning, we made some adjustments to capitalise on emerging trends. We exited our position in Boeing due to our belief that a series of highly publicised safety incidents in recent months point to entrenched cultural challenges within the company. We also exited our position in Nike as we remain unconvinced that the company’s pivot towards athleisure will generate returns. As an extension of this view, we introduced a new position in the performance footwear company On Holding, believing that this competitor will achieve greater returns by focusing on its core running shoe products.
Internationally, we added exposure to Alibaba, the valuation of which became more attractive as its broader national market faced challenges. The company’s strong balance sheet combined with strong free cash flow generation are expected to support the shares going forwards.
Future outlook
Our outlook remains optimistic as data from the US – which forms a large portion of the global equity fund – appears to indicate a low likelihood of recession. The country’s labour market remains resilient, with low unemployment and continued job growth across the quarter. Additionally, the strong market performance over the last six months has created a wealth effect among consumers, given the relatively high exposure of the average American to the stock market.
However, we believe there is still cause for caution. While we expect the market to remain buoyant, it is our belief that the very high levels of growth seen in recent months are unsustainable in the medium term – particularly among the leaders of the Magnificent Seven. Thus, we will continue to review opportunities among companies with smaller and mid-market caps, which may see greater opportunities for growth in the coming months.
Geopolitical risks remain significant as a large portion of the global population will vote in elections in 2024. Changes in government may bring changes in policy, which will be monitored accordingly.
Important Information
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.
Promotion approved 19/04/24
