WS Canlife Global Macro Bond Fund
Q4 2024 WS Canlife Global Macro Bond Fund
Fund update
Next storyMarket review
The fourth quarter of 2024 was, overall, a difficult one for fixed income returns as government bond yields rose strongly across all developed markets. Several factors contributed to this trend. While central banks continued their rate-cutting, with the US Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) all reducing rates in the fourth quarter, inflation in developed markets has remained above target and core inflation rates are still too high to justify a faster lowering of interest rates.
The election of Donald Trump as the 47th US President added to inflation concerns. Trump’s expected policies of fiscal easing through tax cuts, the imposition of trade tariffs on imports to the US and deregulation of the financial services sector are all likely to fuel a return of inflationary pressures, limiting the room for central bank cuts still further.
The ECB also faces the added challenge of a slowdown across Europe’s core economies, in particular within the manufacturing sector. In the UK, the first budget from the new Labour Government brought with it a projected increase in government borrowing, which was a further contributor to rising yields on UK gilts.
Despite these sovereign concerns, credit markets had a strong quarter, as companies continue to be financially robust and have been able to pass their own rising costs to customers. Meanwhile jobs markets continue to send strong signals. Corporate credit spreads tightened across all rating bands during the quarter.
Fund activity
During the period, the fund produced a positive return that was ahead of the benchmark. The US dollar rose 7% against sterling over the fourth quarter. This rise added to total return and our overweight position in US dollar bonds meant the rise also contributed positively to relative performance. The euro and Japanese yen decreased versus sterling, which was detrimental to total returns. However, the fund’s underweight position in these two currencies helped lift relative performance.
Notable purchases during the quarter included sterling bonds issued by UK property group Hammerson and a hybrid bond issued by French energy group Total.
Outlook
We expect the trends seen in the fourth quarter to continue at least into the first half of 2025. The inflationary risk in the US has already reduced market expectations for interest rate cuts this year. Prior to Trump’s election victory, markets had been expecting four to five cuts to US rates during 2025 – that expectation has now been reduced to just under two.
The economic slowdown in Europe is likely to continue and could accelerate depending on the scale of tariffs imposed on European exports by the Trump administration. European governments have little room to address their economic travails with fiscal stimulus, given their high levels of sovereign debt, which exceeds the 60% of GDP target rule in most leading economies. Any stimulus is likely to come from the ECB and the BoE in the form of accelerated interest rate cuts.
Given all these factors and the uncertainty surrounding the details of US economic policy, we expect volatility in fixed income markets to remain high during the first quarter. A clearer picture of these details should emerge by the second half of the year and will be key to both interest rates and corporate bond spreads in the third and fourth quarters of 2025.
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.