Canada Life Portfolio Manager Connect Series: highlights from T. Rowe Price

By T. Rowe Price | July 20, 2021
Portfolio specialists Jennifer Martin and Terry Moore

On the Canada Life™ Portfolio Manager Connect Series, we were joined by portfolio specialists Jennifer Martin and Terry Moore with T. Rowe Price, who outlined the incredible breadth and depth of research behind the Canada Life Global Growth Balanced Fund (T. Rowe Price). In case you missed the event, Jennifer and Terry have summarized how the fund combines leading expertise across both global equities and fixed income, aiming to find a balance between long-term growth and consistent income. They outline how they’ve met the challenges of 2021 and how they’ve positioned the portfolio to be resilient going forward as the world recovers from the shock of the COVID-19 pandemic.

Learn more about the Canada Life Portfolio Manager Connect Series here. Don’t miss your chance to hear directly from portfolio managers of funds across the Canada Life wealth shelf.

The Canada Life Global Growth Balanced Fund is composed of two underlying portfolios – Global Growth Equity and Global Multi Sector Bond strategies.

Why Global Growth Equity?

Global Growth Equity has the largest opportunity set of any equity strategy at T. Rowe Price and is constructed in a way to leverage our extensive global research platform, which has more than 200 analysts globally. It’s a truly global portfolio that’s typically invested in 30 different countries, reflecting the best developed, emerging and frontier market stock ideas and recommendations from our global analysts that meet the strategy’s investment framework. More than 70 analysts are represented in the portfolio today.
Stock selection, meant to drive the decision making and alpha generation of the portfolio, leverages the organization’s bottom-up fundamental stock picking. It’s a high conviction growth approach focused on high-quality businesses with strong and durable growth prospects operating in attractive industries – targeting returns of 30 to50% over two to three years per individual security.
The Global Growth portfolio maintains exposure to traditional secular growing companies, cyclicals that are in favor, defensive growth companies, and idiosyncratic stock ideas. At T. Rowe Price, our approach to global investing is a differentiator for investors who want high stock-level conviction balanced by broad geographic exposure and sector diversification. The Global Growth Equity strategy’s broad definition of growth and geographical and sector diversification should serve the portfolio well both when growth is in and out of favor.

Portfolio positioning and global growth equity opportunities

The evolving global macro landscape has become increasingly complex, requiring a forward-looking time horizon that balances the market’s various pushes and pulls around fiscal and monetary policy, vaccine distribution globally, the re-opening of various economies, and inflation and interest rates. The strategy’s balanced portfolio positioning – not overly offensive or defensive – reflects these challenges. Additionally, we think volatility is likely to increase, creating an environment well suited for active investment.
The portfolio has been resilient in the various market environments we’ve experienced since the beginning of 2020. The alpha generated over the period is a testament to the active decisions portfolio manager Scott Berg executed to capture alpha and provide downside risk mitigation.
The portfolio invests in a diversified opportunity set across industries and geographies. A few examples discussed include: Sea, a COVID-19 beneficiary and winner in video gaming, e-commerce and digital payments in greater Southeast Asia; Shopify, highlighted as a new beneficiary and leading omni-channel commerce platform for independent merchants; Brookfield, one of several alternative managers in the portfolio representing an example of a secular beneficiary from rising allocations to alternatives; and General Electric, an example of a large conglomerate in the process of a large-scale portfolio restructuring.
Valuation always matters in generating alpha and in controlling absolute and relative risks and Tesla is an example of a long-term holding we scaled back to reflect the updated risk and reward assessment following last year’s seismic stock price gains. Boeing is an example of a stock that was eliminated in acknowledgment that COVID-19 had negatively impacted the aerospace industry in a material way.
The market appreciates the cyclical reopening trend, which has been reflected in future growth estimates. We wouldn’t say that the value recovery has not been deserved, but in reviewing future earnings estimates, the market is already assuming there will be meaningful positive revisions to the value estimates. However, growth estimates are also continuing to grow, and we see double-digit growth in earnings estimates in 2021 and 2022, which gets us excited about our opportunity set.

Why Global Multi-Sector?

The Global Multi-Sector Bond strategy sleeve provides broad fixed income exposure to government, corporate and securitized assets in developed and emerging regions, as well as investment-grade and below-investment-grade credit markets. We seek attractive return opportunities around the world by leveraging our global research platform, which researches in over 80 countries, covering 40 currencies and 16 fixed income sectors.
We invest in global markets and strive to cast the widest net for bond opportunities, which includes hedging currency risk. We use a wide range of flexibility to play both offense and defense, depending on the market environment.

Portfolio positioning and global fixed income opportunities

Today’s incredibly easy monetary policy, loose fiscal policy and vaccine rollouts boosting pent-up demand are indicative of higher interest rates as we get back to normal. However, the risks are well known: valuations are historically rich, and nobody really knows if the high inflation prints we see over the next couple of months will be sustainable into next year.
In the first quarter, yield curves steepened as rising growth and inflation expectations reduced demand for haven assets. Strengthening economic growth, fueled by fiscal and monetary stimulus and improved vaccination rollouts, may reassert its influence over markets. Rising inflation expectations could continue to drive global yields higher and yield curves steeper.
Earlier this year, the prospect of large fiscal stimulus packages in the U.S. led to a sell-off in U.S. Treasuries, which filtered through to a number of other bond markets. In fact, the massive amount of fiscal and monetary support over the last year equates to 35% of global GDP, which is fueling the concerns for rising inflation.
Over the first quarter of 2021, we increased our global high yield allocation and removed some hedges that we tactically added in the fourth quarter. Climbing sovereign yields broadly weighed on absolute performance for fixed income sectors. However, excess returns were positive as credit spreads either held firm or tightened across spread sectors.
We increased our duration based on a tactical decision and are slightly overweight U.S. versus the benchmark. We also have a steepening curve bias in the U.S. where we believe longer-term rates could rise while short-term yields remain anchored at low levels. We added marginally to UK duration while remaining underweight, and we initiated a small position in Thailand.
We took advantage of the March 2020 sell-off by buying risky assets, shorting the U.S. dollar, and getting long duration last year. More importantly, recognition goes to our fixed income research analysts, as they helped us avoid defaults that occurred last year, and find attractive investment opportunities.
Amid short-term uncertainty, we continue to believe that our investment process and global reach should help us continue to find attractive opportunities and provide the diversification benefits that can add value over the long term.

The views contained herein are those of the presenters as of the date and time noted and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. This material is not intended to be investment advice or a recommendation to take any particular investment action.

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