Welcome to Ireland’s newest health Insurer, Irish Life Health. Bringing fresh options and innovation to the health insurance market.
Over the quarter, stock markets continued to rally after Donald Trump’s election and generated very strong returns in shares but Eurozone government bonds fell in value. Some of the key drivers of markets during the quarter were the improving global economic data and positive earnings reports during the quarter as well as a U.S. interest rate rise and upgrades to global earnings forecasts for 2017. On the political front, the main focus continued to be on Trump as well as the upcoming French presidential election.
The table below shows the total returns to end of Quarter 1 2017 on each of the five Irish Life MAPS funds since launch (17 May 2013) and over the last 1, 2 and 3 years. Irish Life MAPS is a long-term investment and we would always urge caution when looking at fund performances over time periods of less than five years.
Source: ‘Moneymate’. Gross returns shown to 31 March 2017, before any fund management charge.
2017 started very much the way 2016 ended – stock markets on the rise and bond markets under some pressure. That theme persisted through most of the first quarter, driven in particular by expectations of a further US interest rate increase which ultimately materialised in March. Other factors that contributed to the strong share and weaker bond markets were strong global investment sentiment surveys, improving Eurozone growth data and better than expected earnings reported by companies. On the political front, while concerns over some of President Trump’s policies remained, the language and tone softened, easing investor fears. In Europe, upcoming elections in the Netherlands, France and Germany took centre stage as commentators wondered if the anti-establishment vote had run its course or whether the future of the EU project was going to be called into question.
Positive sentiment surveys don’t tell you the world is a better place, but they do tell you if people FEEL the world is a better place. Stock markets are a very good example of where perception often becomes reality. Recent surveys are indicating that people perceive things are going to get better not worse. That in turn positively impacts real behaviour and creates an environment for investment and employment…and that does make the world a better place.
If interest rates had a Facebook page, its relationship status would read “it’s complicated”. The challenge for global central banks is to get interest rates to a level that supports the ‘right’ amount of growth for an economy. If rates are too low, too much money is borrowed fuelling too much growth, too quickly which often ends with a crash like 2008. If rates are too high, businesses are less likely to invest, hire or expand which limits growth. The US Federal Reserve have indicated they no longer need super low interest rates to drive growth and a return to more normal interest rates is slowly underway. The key word is slowly. They are guiding for two more increases in 2017 which would bring rates up to approximately 1.25%. The long term ‘neutral position’ is approximately 2.75% but it will be some years before they get back to those levels.
Some investors are starting to show signs of Trump fatigue. Having realised strong gains since Trump took office on a whirlwind of threats and promises which looked positive for Wall Street, he has actually delivered very little and increasingly looks under threat of failing to deliver. There comes a point where stock markets will look for actions not words or investors may be tempted to dump shares and take profits. That time is getting ever closer.
The MSCI AC World equity index rose 5.8%. Within that, Europe +6.2%, Pacific +8%, Emerging Markets +7.8%, UK +3.8% and the US +4.8%. In bond markets, the Eurozone >5yr bonds fell -2.3%, with German 10yr bond yields strengthening to +0.33%. The Euro currency rose slightly versus the US dollar but weakened slightly versus Sterling. Commodities fell -5.1% driven by a reversal of fortunes for oil where prices fell 7.1% due to higher inventories.
The graphs below split out the performance for each Irish Life MAPS fund since Launch (17 May 2013 ) to 31 March 2017 into each of the component asset classes. For more on these asset classes see below.
Taking Irish Life MAP2 as an example, it is up 16.71% over this period. This 16.71% can be broken down as shown with 4.47% coming from Low Volatility Shares, 4.26% from Bonds, 2.88% from Property, 0.08% from Cash, 0.49% from External Managers, 4.52% from Global Shares and 0.01% from Option Strategy just introduced.
Source: ILIM 31 March 2017
The data above is based on Moneymate fund performance and the breakdown of the individual asset class returns is approximate. Performance is gross of taxes and charges. The data above allows for the effect of the annual reviews of the funds over that period, for example, the move from Minimum Volatility Shares to Low Volatility Shares, the changes in External Managers, the move from Developed Market Shares to Global Shares and the very slight effect of the changes just made in the last month, etc. It also allows for the impact of tactical allocations over the period.
ILIM track the performance of a large global share index. There are nearly 2,500 individual company shares represented which operate in 11 different sectors. We use the DSC model on Global Shares. Global Shares includes about 10% in Emerging Market Shares.
ILIM track the performance of a broad Emerging Markets share index to provide exposure to Emerging Market Shares. Emerging Market Shares include over 800 individual companies which operate in 23 different markets.
Using a detailed, quantitative strategy, ILIM choose shares from a broad global share index which not only have shown lower volatility in the past but which are also screened for other indicators such as value, for example. ILIM choose over 200 shares to make up their Low Volatility Shares fund.
The option strategy further diversifies the allocation to shares (in addition to DSC and Low Volatility Shares). The option strategy currently sells put options on a monthly basis which provides some downside protection if markets fall and for which the funds get paid a fee.
ILIM currently track the performance of a recognised and leading corporate bond index to provide exposure to corporate bonds. Within the bond allocation, ILIM choose the proportion to invest in corporate bonds and have discretion in relation to the index which is tracked.
ILIM currently track the performance of a recognised and leading emerging market bond index to provide exposure to emerging market bonds. Within the bond allocation, ILIM choose the proportion to invest in emerging market bonds and have discretion in relation to the index which is tracked.
ILIM currently track the performance of a recognised and leading government bond index to provide exposure to government bonds.
Within the bond allocation, ILIM choose the proportion to invest in government bonds and have discretion in relation to the index which is tracked.
Starting in April 2017 ILIM will track the performance of a recognised and leading high yield bond index. The High Yield Bond allocation will be sub-advised by an external manager.
ILIM recognise the need to incorporate alternative strategies within the Irish Life MAPS funds and have an active pipeline of external managers they monitor on an on-going basis. There were no changes in Q1 2017. Towards the end of Quarter 3, the Putnam Total Return Fund was replaced with the Putnam Multi Asset Absolute Return Strategy. During Quarter 4, a further fund manager, MidOcean, was given an allocation through the addition of the DB Platinum MidOcean Fund. There is now access to nine leading global real and absolute return managers through each Irish Life MAPS fund’s External Managers / Alternatives portion. The percentage allocated to External Managers / Alternatives varies for each Irish Life MAPS fund.
Within this percentage, the target split across the nine managers is shown as well as details of the managers themselves and the funds we invest in. ILIM actively look for managers that can bring diverse performance at the right price. They monitor this performance on an ongoing basis and may choose to change the allocation to external managers or the target allocation within the External Manager allocation. They may also choose to replace, add or remove External Managers as opportunities arise and market conditions change.
|Manager||Assets Managed||Fund Name|
|$77 billion (31 Dec 16)||GMO Real Return Fund|
|$160 billion (31 Mar 17)||Putnam Multi Asset Absolute Return Strategy(MAARS)|
|$187.6 billion (31 Dec 16)||AQR Global Risk Parity|
|AQR Style Premia|
|$5.1 trillion (31 Dec 16)||Blackrock FIGO Fund|
|$1.47 trillion (31 Dec 16)||PIMCO Income Fund|
|JP Morgan Asset Management Source
|€1.77 trillion (31 Dec 16)||JP Morgan Systematic Alpha|
|Dunn Capital Management Source
|$956 million (31 Dec 16)||Montlake Dunn WMA|
|Morgan Stanley Investment Management Source
|$2.1 trillion (31 Dec 16)||MS Diversified Alpha Plus|
|$6 billion (31 Dec 16)||DB Platinum MidOcean Fund|