By Canada Life Investment Management | Aug. 30, 2024

Central bank easing cycles, the U.S. presidential election and China’s economy are some of the key topics these best-in-class sub-advisors indicated will affect their regions as we’re well into the second half of 2024. Navigating through the heightened macroeconomic threats and opportunities is a key part in all their investment processes.

The first half of 2024 saw global markets being affected by a range of economic and political factors. These included narrowly driven equity markets, central banks lowering interest rates and geopolitical events such as conflicts and multiple election campaigns. The second half of the year is well underway and markets around the world are yet again going to be affected by a number of macroeconomic forces. This makes it important for investors to have access to a broad network of specialized investment managers from around the world who offer deep expertise within their specialized areas of portfolio management.

Canada Life recognizes that no single asset manager is an expert in every asset class. That’s why Canada Life employs a multi-manager, best-in-class approach that draws on different management styles, investment philosophies and risk management strategies from asset managers around the world to sub-advise our funds. This is Canada Life’s competitive advantage as it provides expertise in every asset class that empowers our advisors to help clients build an investment plan tailored to their goals.

Best-in-class sub-advisor insights – equity markets around the world

Canada Life has partnered with 20+ best-in-class sub-advisors from around the world to manage Canada Life mutual and segregated funds.

Here are a few of our largest and more active sub-advisors across the major equity categories (Canadian, U.S., international and emerging markets) sharing their insights and thoughts on the key events/themes affecting their regions in 2024. They also share the opportunities they see in the current market cycle and how they’re using their competitive advantage to position our funds in order to capitalize on investment opportunities.

Mackenzie’s North American Equity and Income Team sees no shortage of significant events that might influence Canadian equities as it looks ahead. The beginning of a central bank easing cycle will be important, with markets pricing in the Federal Reserve to begin cutting rates in September, a move that should support the performance of interest-rate sensitive sectors. The Team is watching the Canadian banks carefully where it currently has an underweight position in the Fund. The U.S. election in November is clearly significant, as another Trump presidency would bring great uncertainty – most notably on global trade. According to the Team. U.S.-China trade tensions could affect global supply chains and economic stability, which in turn could impact Canadian markets. A more protectionist approach towards Canadian industries, including automotive and agriculture remains a risk. The Team has limited exposure to these segments in the Fund. 

Valuation levels within certain segments of the U.S. market have been a concern for some time – the growth rates are compelling, but valuation is stretched, according to the Team. The Canadian market, in comparison, looks reasonably priced but with overall growth that’s less attractive or more volatile and subject to revision. Given the Team’s concern around the narrowness and rich valuations of the U.S. market, as well as the uncertainty surrounding the upcoming election, the Fund’s U.S. exposure is below historical average. The Team is constantly monitoring its potential investment candidates in the U.S. market, awaiting compelling entry points. The Fund can invest up to 20% in non-domestic stocks. 

As the second half of 2024 unfolds, the equity market is expected to be affected by a number of geopolitical and economic forces. The experience of the North American Equity & Income Team and the discipline it brings to the portfolio management process will be hugely beneficial to the Fund.

Putnam hears the concerns that the narrow market leadership we’ve seen in 2024 makes broad market gains unsustainable. However, Putnam anticipates that market leadership alongside earnings growth will broaden beyond the small subset of companies that have driven markets thus far. In the growth space, a shift in leadership will require sustainable, outsized growth — which Putnam is starting to see across multiple sectors. Additionally, the combination of corporate earnings growth and easing inflation should help to expand market breadth in the months ahead. As always, Putnam is taking a long-term view, with portfolios that are positioned to take advantage of stock-specific opportunities.

Putnam expects the U.S. presidential election to be among the most significant events affecting U.S. equity markets for the remainder of 2024. This race, as well as other major elections across global markets, could bring turbulence as financial markets generally don’t respond well to uncertainty. Investor sentiment will also be affected by the ongoing Middle East and Russia-Ukraine conflicts, as well as political turmoil within the EU.

These issues, like all macroeconomic events, are addressed as part of Putnam’s investment process. Risk management, through disciplined portfolio construction, is as important as stock selection in Putnam’s approach, including stress testing the portfolios against various scenarios to safeguard the portfolios as much as possible against macroeconomic challenges.

A key competitive advantage for Putnam is its long-term investment horizon and its hybrid, fundamental research structure. It encourages debate and idea exchange between sector and strategy specialists to deliver a unique, collaborative view on stock opportunities.

C WorldWide believes we’re witnessing an important transition from a multi-decade period with one superpower dominating the global agenda to a multi-polar world, where more countries, led by China, seek increased influence. This has profound implications and will likely create further geopolitical turbulence in the years ahead.

To some extent, it can be argued that the ongoing military conflicts are rooted in this shift to a multi-polar world. Therefore, C WorldWide’s well-established theme of ‘Bigger Government’ will become even more pronounced. Wars are, by definition, a government domain, and we’ll see governments exerting greater influence across the business landscape. More ‘Power Politics’ where national interests are expected to define priorities. Green energy transition, where countries increase their level of self-sufficiency, is one example. Greater government influence on and even control of monetary policy will likely continue and become the norm.

C WorldWide believes, as an investor, you need to be on the right side of government priorities and policies. The equity markets have started rewarding companies exposed to the tangible economy, hence C WorldWide’s recent purchase of Schneider Electric.

As long-term investors, C WorldWide looks through economic and market cycles to find the companies with the best  risk/return profile. In this respect, C WorldWide continues to see many attractive opportunities that are supported by thematic tailwinds.

C WorldWide’s portfolio management team’s stability and culture promote nimble decision making and rich idea generation. Being based in Copenhagen helps the team retain a global perspective as it has a small equity market in Denmark and is therefore less prone to a home market bias.

Northcape believes the U.S. election is the main event in the second half of 2024. Trump is a more transactional person, and less inclined to comply with the rules-based global order and multi-lateral agreements, according to Northcape. The main risk for emerging markets is China where Trump plans to impose a 60% tariff on all goods imported from the country. A general 10% tariff would be applied to all imports.

Trump has also mentioned that the 11 million undocumented immigrants currently residing in the U.S. would be deported. In addition, he’s indicated that tax cuts wouldn’t be rolled back, and has mentioned potential change in leadership of the U.S. Federal Reserve. Northcape does not see Trump reversing the Chips Act, materially modifying the United States–Mexico–Canada Agreement (USMCA) or radically changing the Inflation Reduction Act (IRA). In Northcape’s view these policies (plus the 60% tariff) would be very damaging for China, inflationary for the U.S., and would potentially negatively impact global growth by reducing trade flows.

The relative winners, according to Northcape, would be countries that have underlying strong demand, supported by favourable demographics and/or investment flows and technology access, especially to leading-edge chips. The continuation of Biden’s Chips Act alone, in Northcape’s view, will restrict China’s technological development.

As such, Northcape thinks the relative out performers in emerging markets would be India, Indonesia and Mexico, to which the Fund is overweight, while China is a deep underweight.

Northcape has seven investment professionals fully dedicated to its Emerging Market strategy. The team has a combined experience of 143 years with a range of backgrounds and skills, creating a strong environment for high-quality, critical research of the emerging markets equity asset class.

Summary

Canada Life offers a full and diverse suite of funds across every major asset class. We truly believe no single asset manager is an expert in every asset class. That’s why we use a multi-manager, best-in-class approach that draws on several management styles, investment philosophies and risk management strategies. Canada Life’s best-in-class approach gives you, the advisor and investor, access to a broad global network of specialized investment managers from around the world who offer deep expertise within their specialized areas of portfolio management.

Central bank easing cycles, the U.S. presidential election and China’s economy are some of the key topics these best-in-class sub-advisors indicated will affect their regions as we’re well into the second half of 2024. What appears to be a consistent theme is that navigating through the heightened macroeconomic threats and opportunities is a key part in all their investment processes. Although each best-in-class sub-advisor takes a long-term view, positioning their funds to capitalize on these near-term events and themes are vital. Most importantly, having deep expertise within their specialized areas of portfolio management is a key competitive advantage of the sub-advisor and the Canada Life funds overall.

Investment Manager Research (IMR)

The Investment Manager Research (IMR) team selects and oversees the best-in-class sub-advisors for the Canada Life’s Mutual Funds^TM and Segregated Funds. With more than 100 years of combined experience in wealth management, the IMR team uses a rigorous – and objective ‒ governance process to select, continuously monitor and evaluate sub-advisors on our shelf.

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