By Canada Life Asset Management

The fourth quarter of 2020 brought a swathe of positive economic, political and medical news, sparking a wave of investor optimism.

Despite a resurgence in COVID-19 infection rates in the UK, Europe and the US, global equities and corporate bonds delivered positive returns. Central banks continued to expand their asset purchase programmes to keep bond yields at historically low levels, which in turn provided strong support for equity and bond markets.

Smaller companies, emerging market equities and Asia-Pacific ex-Japan equities produced exceptional returns on hopes for an economic recovery. Value stocks outperformed growth stocks as investors shifted their focus from technology, e-commerce, healthcare and consumer staples towards mining, consumer, leisure, transport, financials and energy stocks.

Corporate bond markets delivered strong returns. Safe-haven assets were less popular, with US treasuries giving a negative total return. UK gilts and German bunds were slightly positive.

Announcements from Pfizer/BioNTech, Oxford University/AstraZeneca and Moderna gave the first strong evidence that mass vaccination could be feasible in 2021. This triggered a swift revival of interest in companies that stand to benefit from social re-normalisation.

Equity and corporate bond markets also responded well to the election of Joe Biden in the US, which was soon followed by bipartisan agreement on the much-needed US pandemic relief plan. The high level of US debt and proposed further spending suggest a weakening of the US dollar, contributing to the notable rise in emerging market equities.

The announcement of a Brexit deal at the end of the quarter removed long-standing uncertainty over the UK’s future and a key deterrent for would-be investors in UK markets. UK equities and corporate bonds rose, and sterling strengthened against the US dollar.

UK property data releases in Q4 highlighted the profound impact of the pandemic on the UK property market. MSCI all property capital values for the UK are expected to have fallen by approximately 11.6% (source PMA), and most types of real estate saw reductions in rents and prices. However, some areas – including industrials, supermarkets and housing – were relatively insulated.

Portfolio review

The fourth quarter of 2020 saw a slight increase in exposure to equities relative to bonds and property across Portfolios III-VI as equity markets recovered, while Portfolio VII’s equity allocation remained broadly unchanged.

Following a strong run in US technology stocks during 2020, the Managers reduced exposure to the NASDAQ and increased exposure to the LF Canlife North American Fund, which is well-positioned to benefit from a broader recovery in the US economy.

The Managers are optimistic about the UK equity market’s prospects, as it appears increasingly likely that the UK’s domestic economy could enjoy a strong rebound in 2021, coupled with increasing global demand for the UK’s international mining, industrial and consumer goods companies. Also reflecting the prospects for global recovery, the Managers added two new European equity holdings, the iShares STOXX Europe 600 Automobiles & Parts and iShares STOXX Europe 600 Industrial Goods and Services ETFs.

Exposure to emerging markets, Japan and the Asia-Pacific region rose in higher risk/return profiled portfolios as these markets continued to recover.
Property exposure remains broadly unchanged, but the Managers have continued to diversify holdings through the iShares Developed Market Property Yield ETF, which gives liquid access to a wide range of yield-bearing property shares.


An end to the pandemic appears to be in sight, but the path to recovery may be bumpy over the coming quarters, particularly if there is disruption to the production and distribution of vaccines.

In the absence of major disruption to vaccination programmes, the second half of 2021 is likely to see a consumer recovery, the reopening of the leisure and tourism industries and the refilling of supply chains. Economic activity could be surprisingly strong. Given pent-up demand for the goods and experiences that consumers have missed during lockdowns, we could see a temporary rise in inflation, bringing a modest rise in government bonds yields.

UK equities have dramatically underperformed other major markets and, with a Brexit deal now secured, appear extremely undervalued and a suitable target for M&A activity. There is a possibility that the UK will be the first major economy to implement its vaccination programme and return to social normality, which bodes well for the UK’s consumer-focused economy.

Corporate bonds have risen significantly since March 2020, and we expect to see further rises as investors anticipate a recovery in sectors most badly affected by the pandemic. However, credit default rates among lower-rated bonds are forecast to rise to their highest levels since the Global Financial Crisis of 2007-08, making good stock selection essential.

UK property remains attractive in the current environment of ultra-low bond yields. 2021 is likely to be a year of change for UK property, with increased demand for flexible working, growth in online shopping, a rise in localism and convenience in suburban areas, and more people moving to rural areas. These trends offer great potential for property investors who are able to tap into these trends.

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. Income from investments may fluctuate. Currency fluctuations can also affect performance.

The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. 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 at

Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

The fund may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the fund. The value of the property is based on the opinion of a valuer and is therefore subjective. CLI01827 Expiry 31/12/2021