MAPS Quarterly update Q1 2018
IRISH LIFE MAPS® FUND PERFORMANCE
It was a mixed quarter for investment markets. January provided a very positive start to the year for shares but was followed by two negative, and relatively volatile, months. The net result was global shares were down -1.7% in local currency terms and -3.2% in Euro as the Euro continued to strengthen. The negative performance was largely driven by concerns that the US Federal Reserve may raise interest rates more aggressively which would push bond yields higher, in turn making shares less attractive. Poor performance from the technology sector and concerns over Trump fuelling a global trade war further impacted sentiment. Eurozone government bond yields, however, fell over the quarter as European Central Bank commentary became less confident around the timing of any future interest rate increase. They flagged that any reduction in market supports will be very gradual process especially while Eurozone inflation remains relatively low.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 1 2018 since launch (17 May 2013) and over the last 1, 2, 3 and 4 years. Irish Life MAPS is a long-term investment and we would always advise caution when looking at fund performances over time periods of less than five years.
|Since Launch p.a.||3.8%||5.4%||7.4%||9.0%||8.7%|
|4 Years p.a.||4.4%||6.6%||9.1%||10.9%||11.6%|
|3 Years p.a.||3.0%||4.0%||4.6%||5.5%||5.5%|
|2 Years p.a.||4.0%||6.0%||7.9%||10.1%||12.5%|
|1 Year p.a.||2.5%||3.2%||3.7%||4.8%||5.7%|
Source: ‘Moneymate’. Gross returns shown to 31 March 2018, before any fund management charge.
Range of Multi Asset Portfolio Funds
ECONOMIC LOOK-BACK Q1 2018
SWINGS AND ROUNDABOUTS
The Trump taxation package in late December boosted the outlook for US economic and corporate earnings growth in the medium term and took with it the stock markets in the short term. However, gains on the swings soon became losses on the roundabouts as strong wage data in February stoked fears that interest rates may rise sooner rather than later. Those fears were compounded by the end of the quarter by the metal meltdown as the US traded threats with various countries on the potential for tariffs on steel and aluminium imports and more specifically with China on over $60bn of Chinese imports. Trumps extreme positioning is likely to moderate in time and with it market fears of a global trade war.
PASTA THE POST
The Italian general election took place in early March. The traditional centre based parties did worse than expected while the EU sceptic parties did better than expected. That said, no single party is big enough to form a government so while the make up of the next government is unclear, the anti EU talk has significantly died down with no party now proposing Italy should leave the EU or the Euro.
Most market commentators now agree it is only a matter of time before interest rates start to increase where they haven’t already. The US started that ball rolling some time ago and raised rates again in March by 0.25%. Now, other major economies are queuing up to join them. Next up looks like the UK who have had a ‘will we/won’t we’ raise rates debate over the last 18 months. That looks almost certain to happen in May. Europe continues to take a cautious approach with expectations of a rate increase now likely to be delayed until the second half of 2019. Even then, increases will be slow.
SHARES, BONDS, COMMODITIES AND CURRENCIES
The MSCI AC World equity index fell -1.7% in the first three months of 2018 in local currency terms (-3.2% in Euro). The US was a relatively better performer, down just -0.6% over the same time period (-3.0% in Euro) as corporate earnings and economic growth were positive. Meanwhile, Europe was down -3.0% but Emerging Markets bucked the general trend with a rise of +0.8% (-0.9% in Euro). Japan fell -4.7% (-1.4% in Euro). Closer to home, the UK was the underperformer with a fall of -7.3% (-6.1% in Euro) as the UK economy continued to lag global gross domestic product (GDP), continued Brexit related uncertainty and indications of a faster and more aggressive interest rate tightening cycle by the Bank of England. Finally, the Pacific region was down -2.8% (-6.0% in Euro).
In Bond markets, the Eurozone >5yr Sovereign Bond benchmark rose +2.1% during the quarter as German 10 year yields rose slightly to 0.50% having hit a peak of 0.81% during the quarter.
In currency markets, the Euro rose against the US dollar, moving to 1.2324 by quarter end driven by the continued strength in Eurozone economic data early in the year and the rising trade tensions, which were seen as negative for the US dollar.
Commodities rose +2.2% (-0.2% in Euro) with WTI oil up +7.5% due to production disruptions in Venezuela, speculation that the Iranian nuclear deal could be suspended and suggestions that Saudi Arabia and Russia are planning a long term oil production cut/inventory limit deal.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), 31 March 2018.
The graphs below split out the total performance for each Irish Life MAPS fund since launch (17 May 2013) to 31 March 2018 into each of the main component asset classes. For more information on these asset classes.
Taking Irish Life MAP3 as an example, it is up 29.17% over this period. This 29.17% can be broken down as shown below - with 12.76% coming from Global Shares, 6.84% from Low Volatility Shares, 3.41% from Bonds, 4.75% from Property, 0.25% from Cash, 1.04% from External Managers, -0.04% from Emerging Market Shares and 0.16% from the Option Strategy.
Source: ILIM 31 March 2018
The data above is based on ‘Moneymate’ fund performance and the breakdown of the individual asset class returns is approximate. Performance is before taxes and charges. The data above allows for the relevant asset splits and the effect of the annual reviews of the funds over that period - some examples: 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 changes made last year such as the introduction of the Option Strategy and High Yield Bonds. It also allows for the impact of tactical allocation changes over the period.
3. External Managers/Alternatives
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 to the line-up of External Managers in quarter 1 2018.There is currently access to seven leading global real and absolute return managers with ten funds 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 seven 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|
|$70 billion (31st December 17)||GMO Real Return Fund|
|Systematic Global Markets (SGM) Fund|
|$169 billion (31 March 18)||Putnam Multi Asset Absolute Return Strategy(MAARS)|
|$224 billion (31 December 17)||AQR Global Risk Parity|
|AQR Style Premia|
|$6.28 trillion (31 December 17)||Blackrock FIGO Fund|
|BlackRock Style Advantage Fund|
|$1.75 trillion (31 December 17)||PIMCO Income Fund|
|Dunn Capital Management
|$1.03 billion (31 March 18)||Montlake Dunn WMA|
|$7.0 billion (31 December 17)||DB Platinum MidOcean Fund|