Market review
Global equity markets performed very well in the final quarter of 2024. In November Donald Trump was once again elected President of the United States which drove optimism within the equity market driven by Trump’s pro-business policies, particularly those affecting energy and financial companies. The Federal Reserve (Fed) cut USA interest rates by 0.25% in November and December, providing some additional support to the economy.
GDP in China continues to slow, hampered by weak consumer confidence and expectations that tariffs from the incoming Trump administration would impact export-oriented sectors. AI continues to be a theme supporting equity markets, in particular large cap technology companies.
The US dollar strengthened steadily during the quarter, in part due to expectations that tariffs will increase on goods entering the US, which may drive inflation higher, potentially causing the Fed to keep interest rates higher than it otherwise would.
Fund activity
During the quarter the fund produced a strongly positive return that slightly outperformed the benchmark, with strong stock selection offset by weak asset allocation. Real estate, energy and technology were the largest positive contributors to performance, while healthcare and consumer discretionary struggled.
At the stock level, JP Morgan and Cheniere Energy added to performance. In terms of portfolio changes, we added stocks including Wintrust Financial, M&T Bank, Citizens Financial, Mirion Tech, Honeywell, AGCO, Estee Lauder and Graco.
The fund closed Q4 2024 with overweight positions in financials and consumer staples and underweight positions in real estate, industrials and technology.
Outlook
While we are positive on equities on a long-term basis, we are concerned that there is little room ahead for earnings expansion in the US, which now accounts for 73% of global markets.
Historically the high-level framework for US equities would have been 10% earnings growth plus a few points of multiple expansion on top to achieve low to mid-teens total return. For the year ahead, we expect about 13% earnings growth in the US, driven by fiscal policy and an earnings recovery. Global equity earnings growth is expected to be about 10% in 2025, largely influenced by the US, with low single digits earnings growth from global developed ex-US markets. With US markets trading on a price-to-earnings (P/E) multiple of about 25x and global developed ex-US markets trading under 15x, there is some scope for multiples to converge via modest multiple contraction in the US, though this is likely to be offset by strong US earnings growth.
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.
