Market review
The third quarter of 2024 proved to be a period of notable fluctuations for the US stock market, presenting both challenges and opportunities for UK-based investors. The Bloomberg North America Large & Mid Cap index experienced a solid gain of 6.2% over the three-month period when measured in US dollars. This growth was primarily driven by strong performances in the utilities and real estate sectors. However, the 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 was more concerned with the economic slowdown than inflation persisting.
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.
Fund activity
The fund underperformed the benchmark during the quarter, driven by both asset allocation and stock selection. The asset allocation drag was driven primarily by not having any real estate, an interest rate sensitive sector. The selection drag was from companies like Edwards Lifesciences, Cognex and Cadence Designs. Yum China and Walmart were positive attributors.
No new stocks were added to the portfolio but we increased our positions in Align Technologies and United Health.
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 an overweight to consumer staples and an underweight to technology. We have maintained exposure to nuclear power companies, which we see as a long-term theme.
Outlook
Looking ahead, UK investors should remain vigilant of several factors that could impact the US market in the coming months. The Federal Reserve's stance on interest rates, ongoing geopolitical tensions, 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.
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.
Due to the underlying assets held in the WS Canlife North American Fund, the price of the fund is classed as having above average to high volatility.
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.
