A truly global approach: delivering non-correlated returns

David Arnaud, Senior Fund Manager | October 2020

For investment professional use only – not for use by retail investors.

A truly global approach: delivering non-correlated returns

An introduction

to Canada

Life Asset

Management

77%

4%

6%

7%6%

Fixed Income: £30.8bn

Cash: £1.6 bn

Equities: £2.3bn

Mortgages: £2.6bn

Property: £2.5bn

Long history and tenure in asset management

Financial strength & security provided by

Canadian parent company, Great-West Life Co,

who has over £987bn* consolidated assets

under administration.

Active in the UK since 1903, we have an

experienced team of 50 investment managers

and analysts – managing £40.5bn across fixed

income, cash, equities, property, mortgages &

multi-asset funds.

Source: Canada Life Asset Management, as at 31/08/20. * AUA as at 30/06/20

3

Focus on fixed income & cash

Our fixed income team manages £32.4

billion assets across government,

corporate and money market funds for

a wide variety of clients.

There is over 280 years’ industry

experience between the fund managers

& in-house credit research team, with

an average experience of 15 years

Source: Canada Life Asset Management, as at 30/06/2020. C

red

it R

ese

arch

Fun

d M

anag

ers

0 10 20 30 40

Marta MeloniIbrahim Ashworth

Jay PatelDaleep Shahi

Ryan ZengSanjay Patel

Jeff AydinAlec Chung

Rick Wisentaner

Eleni PoullidesMichael CountDavid Arnaud

Kshtij SinhaSteve Matthews

Andy HeadFiona Keogh

Roger Dawes

Years

Years in industry

Years at Canada Life Asset Management

4

LF Canlife Global Macro Bond Fund David Arnaud & Kshitij Sinha

▪ 16 years’ experience in investment management

▪ Joined Canada Life Asset Management in January 2006

▪ Manages c. £6 billion in corporate bond and government

bond portfolios

▪ MSc in Economics & Management and a Postgraduate

diploma in Financial Engineering & Corporate Finance,

both from Paris Dauphine University

▪ CFA charterholder

▪ 15 years’ investment experience

▪ Joined Canada Life Asset Management in August 2016

▪ Previously traded European investment grade and crossover

corporates as a market maker at Morgan Stanley

▪ MSc in Operational Research from the London School of

Economics

▪ CFA charterholder

5

Fixed income

investing in

the UK

Unlike in equities, there is a significant home bias apparent

in fixed income

▪ Investment Association data shows us that £601 billion is

invested in equity funds (as 30.06.20)

▪ 66% (£396 billion) is invested in markets outside of the UK

▪ In fixed income, however, just 27% of assets under

management is invested in global bond funds. The vast

majority is invested across the various £ sectors

Investors are losing out

on the benefits of

diversification (from both

a risk and return basis),

by paying less attention

to global bond funds

Risks not sufficiently

diversified

Source: Investment Association, as at 30/06/2020.

7

The domination of hedging further contributes

to reduced diversification

The sector is home to a

wide array of strategies,

covering global

government, investment

grade corporate & high

yield debt

Global Bonds

Even within global bond

vehicles, however, there

is a preference to invest

in hedged share classes

Currency hedging

For example, Vanguard’s £20 billion Global Bond Index Fund only offers hedged share classes

8

Source: Investment Association & Trustnet, as at 31/08/2020.

Unhedged fixed income delivers a truly global experience

Asset Allocation Decisions

▪ Clearly, both hedged & unhedged fixed income

play a role in client portfolios

▪ However, we believe some investors are missing

a trick, by only allocating to hedged global fixed

income products

▪ Active currency allocations can be a useful

source of return during periods where

government bond yields are rising/negative or

credit spreads are widening

▪ This can be critical in preserving capitalSource: Morningstar Direct, as at 31/08/20. Performance of Bloomberg Barclays

Japan Government Float Adjusted Index, in GBP & JPY.

10

Unhedged outperformed hedged over 10 years▪ Using the Bloomberg Barclays Global Aggregate Bond Index, we can see that the unhedged version has

outperformed over the last 10 years

Source: Morningstar Direct, in sterling, as at 14/09/20..

-10

0

10

20

30

40

50

60

70

Sep/10 Sep/11 Sep/12 Sep/13 Sep/14 Sep/15 Sep/16 Sep/17 Sep/18 Sep/19 Sep/20

% r

etu

rn

Bloomberg Barclays Global Aggregate TR GBP

Bloomberg Barclays Global Aggregate TR Hedged GBP

11

And 5 years….

Source: Morningstar Direct, in sterling, as at 14/09/20.

-10

0

10

20

30

40

50

Se

p/1

5

No

v/1

5

Jan

/1

6

Ma

r/1

6

Ma

y/1

6

Jul/

16

Se

p/1

6

No

v/1

6

Jan

/1

7

Ma

r/1

7

Ma

y/1

7

Jul/

17

Se

p/1

7

No

v/1

7

Jan

/1

8

Ma

r/1

8

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y/1

8

Jul/

18

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p/1

8

No

v/1

8

Jan

/1

9

Ma

r/1

9

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Jul/

19

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No

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Jan

/2

0

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Jul/

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12

▪ Unhedged fixed income has also tended to provide greater protection during periods of market stress

Greater downside mitigation

Source: Morningstar Direct, in sterling, calendar year 2008.

45.1

7.6

0

5

10

15

20

25

30

35

40

45

50

% r

etu

rn

The 2008 Financial Crisis

Bloomberg Barclays Global Aggregate TR GBP Bloomberg Barclays Global Aggregate TR Hedged GBP

13

14

Greater downside mitigation

Source: Morningstar Direct, in sterling, 01/03/20 to 30/06/20.

4.4

0.6

-3

-2

-1

0

1

2

3

4

5

Feb/20 Mar/20 Apr/20 May/20 Jun/20

% r

etu

rn

The Covid-19 pandemic (March to June 2020)



▪ We believe an unhedged fixed income portfolio is critical in providing increased

diversification for GBP-denominated investors

▪ This can be evidenced by the significantly lower long-term correlation offered by

unhedged global fixed income (as represented by the Bloomberg Barclays Global

Aggregate Bond Index unhedged and hedged versions) versus a weighted average of

the IA £ Corporate Bond, £ Strategic Bond and £ High Yield sectors

Source: Morningstar Direct, as at 31/08/2020. Long-term correlation measured from 1990 to 31/08/20 using monthly data points. Indices used = Bloomberg Barclays Global

Aggregated Bond Index, Bloomberg Barclays Global Aggregate Bond Index Hedged GBP, IA £ Corporate Bond, IA £ Strategic Bond & IA £ High Yield.

Lower correlation to other GBP sectors

15

Case Study Example – 2018

▪ 2018 was a volatile year in which we saw

government bond yields rise globally

▪ In addition, corporate bond spreads widened.

In a typical environment, spreads tighten when

government bond yields rise

▪ Therefore, it was very hard to generate returns

without looking at your currency exposure and

allocating accordingly

▪ The Fund benefitted from its overweight to USD

& JPY for example, which allowed it generate a

positive return for the year

Source: Morningstar Direct, bid-to-bid, with net income reinvested and no initial charges, 31/12/17 to 31/12/18. C Acc GBP share class performance, in pound sterling. Government bond yields increased

globally (e.g. US treasuries, UK gilts, German bunds), credit spreads widened (e.g. iBoxx USD Corporates, GBP Corporate, EUR Corporates indices, trade-weighted GBP fell in value.

16

How do we

construct

portfolios? Asset

sector & stock

selection still

critical

LF Canlife Global Macro Bond Fund

▪ Invests solely in developed market currencies (USD,

EUR, GBP, CAD, JPY, AUD). Most peers are heavily USD$

biased, we aim to offer a more diversified exposure

▪ Takes views on currencies and leaves exposures

unhedged

▪ Invests in high quality, liquid government and investment

grade corporate bonds

▪ No derivatives, long-only. Simple & easy to understand

portfolio

▪ ‘Triptych’ approach to generating returns: interest rates,

corporate spreads & FX

Source: Canada Life Asset Management, as at 31/08/2020. The Distribution Yield reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the mid-

market unit price of the fund as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any preliminary charges and investors may be subject to tax on distributions.

18

How do we find opportunities?

Strong credit

Appropriate

duration

Attractivevaluation

2BUY

3

1

• Interest rates

• Inflation

• Bond yields

• Currencies

• Quarterly forecasts

• Weekly updates

Macroeconomic analysis

Stock selection: investing in credits

we understand

• Positive fundamental view

• Strong guarantee mechanism

• Cheap vs. own history

• Cheap vs. peers

TOP DOWN BOTTOM UP

19

Idea generation to execution

Weekly credit

meeting

Fund manager

ideas

DiscussionRelative value

analysis

Market monitoringOngoing

monitoring

and review

Trade

execution

20

Positioning &

Performance

Outlook

• Central banks will continue to support recovery in their respective economies through easy monetary policies

• Extension of low/negative rates

• Governments will be providing fiscal support to fuel economic recovery

• The monetisation of government and corporate debt fuelled by QE which distorts credit market

▪ Neutral / Short duration

▪ Overweight Corporates

▪ Overweight subordinate debt in high quality names

▪ Overweight EUR

22

Asset & Currency Breakdown

Source: Canada Life Asset Management, as at 31/08/2020.

23

Fund Performance

Source: Source: Morningstar Direct, in sterling. C Acc GBP share class, bid to bid, with net income re-invested. 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.

24

Credit examples

Bond details as at time of purchase:

▪ Yield: 3.72%

▪ Duration: 17.9 yrs (to call)

▪ Z- Spread: 285 bps

▪ Rating: A+

Credit highlights:

▪ Leading industrial conglomerate serving manufacturing, healthcare and consumer markets

▪ Geographically diversified revenue stream spread over

70 countries

▪ Strong liquidity with $4.5bn cash & equivalent vs. $2.1bn debt maturing in 2020 & 2021

▪ Parent entity rating of A+ (S&P)

3M Company (USD) 3.7% 50

26

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. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may

fluctuate. Credit ratings are internal and assigned by Canada Life Asset Management. Ratings will generally be in line with the major external rating agencies and

should not be higher than the highest of these. Canada Life Asset Management will assign ratings to bonds that do not have an external rating.


▪ Yield: 2.96 %



▪ Rating: A

Credit highlights:

▪ Second largest airport group in Europe

▪ 50.6% ownership by the French government

▪ Lower leverage than peer European hubs

▪ Parent entity rating of A (S&P)

Aeroports de Paris (EUR) 2.75% 30

27






▪ Yield: 3.66%



▪ Rating: BBB

Credit highlights:

▪ Leading global market position in hand and power tools

with strong global branding

▪ Geographically diversified revenue stream

▪ Higher margins than peers due to good pricing power

and efficient operations

▪ Parent entity rating of A (S&P)

Stanley Black & Decker (USD) 4% 25-60





28

Contact02074 156 488

07825 583 930

[email protected]

Canada Life Asset Management

1 – 6 Lombard Street

London

EC3V 9JU

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 theamount 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 reliedupon 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 ora recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued forinformation only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, tosubscribe for shares or buy units in funds. Subscription for shares and buying units in the fund(s) must only be made on the basis of the latestProspectus and the Key Investor Information Document (KIID) available at www.canadalifeassetmanagement.co.uk.

Data Source - © 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or itscontent providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor itscontent providers are responsible for any damages or losses arising from any use of this information.

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 threeentities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management Limited is authorised and regulated by theFinancial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial ConductAuthority and the Prudential Regulation Authority.

CLI01706 – 31/10/2020

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A truly global approach: delivering non-correlated returns