IRISH LIFE MAPS® FUND PERFORMANCE
Having finished 2018 on a very negative note, global equity markets rebounded strongly in the first quarter of 2019, recovering the losses experienced at the end of last year, delivering a return of 12.4% in local currency terms (14.4% in euro terms) over the quarter. Two main developments contributed to the recovery in markets. First was the policy change announced by the US Fed when it announced plans to leave interest rates unchanged in 2019 compared to its year end guidance of two rate rises this year. The second main development which helped contribute to the gains in stock markets was growing hopes of a trade deal between the US and China. The potential for a trade agreement was viewed as a means of removing a significant question mark on global growth which had acted as a drag on activity through much of last year.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 1 2019 since launch (17 May 2013) and over the last 1, 2, 3, 4 and 5 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.||3.4%||5.0%||6.8%||8.2%||7.9%|
|5 Years p.a.||3.9%||5.8%||8.0%||9.6%||10.1%|
|4 Years p.a.||2.7%||3.7%||4.4%||5.2%||5.10%|
|3 Years p.a.||3.2%||5.0%||6.5%||8.1%||9.6%|
|2 Years p.a.||2.2%||3.1%||3.7%||4.5%||4.9%|
Source: Moneymate. Gross returns shown to 31 March 2019 before any fund management charge.
ECONOMIC LOOK-BACK Q1 2019
THE MORAL OF THE STORY
“Motion sickness occurs in connection with travel or movement when an incongruity comes about between visually perceived movement and the vestibular system’s sense of bodily movement and symptoms include dizziness, fatigue, vertigo, depressed appetite, nonspecific malaise, gastrointestinal discomfort and nausea”. Source: Wikipedia.
I can only assume that investors may have experienced some, or all, of the above during the rollercoaster markets at the end of 2018 and beginning of 2019. Thankfully, what was lost on the loop-the-loops was more than recovered in the zero gravity vertical lift. In fact, the start to markets in 2019 is the strongest in 20 years for the S&P 500. More evidence too, if it were needed, that short term volatility is back with a bang. It also reinforces what might otherwise seem obvious - at no point in a rollercoaster ride should you consider getting out of the car with a view to re-joining the ride for the less bumpy bits. It is unlikely to end well. The moral, as with investing, is that when you get in, you are almost certainly better off staying in.
The increases in US interest rates have finally come to a halt. Initially used to manage inflation concerns during the strong US economic recovery, they now look to have peaked. Indeed, President Trump has recently been agitating to reverse the trend in rising interest rates in order to keep the recovery going. Perhaps he knows what the US economy needs better than the US Federal Reserve or perhaps he is just positioning himself for a second term in office. Either way, future rate increases are on ice for now.
China/US trade talks progressed in the early part of 2019 as China agreed to significantly increase US imports and Trump removed the threat of a potential $200bn in tariffs on Chinese imports to the US. Key takeaway - if signed, the deal will boost global industrial production and investment activity for the rest of the year.
SHARES, BONDS, COMMODITIES AND CURRENCIES
Over the quarter, the MSCI AC World equity benchmark rose 12.4% (14.4% in euro). The US rose 13.9% (16.0% in euro) following the policy u-turn announced by the Fed and easing recessionary fears. Europe (excluding UK equities) rose 12.6% (12.7% in euro) similarly benefitting from the more accommodating policy stance adopted by the European Central Bank (ECB) and also growing hopes of a potential rebound in Chinese growth if trade deal with the US is agreed, given Europe’s sensitivity to the Chinese economy. Japan lagged most markets, rising just 7.8% (8.8% in euro) as economic data disappointed while there were lingering concerns over the potential impact of the planned VAT increase scheduled for October. The UK also underperformed, rising 9.4% (13.9% in euro) due to the ongoing Brexit related uncertainty.
In Bond markets, global bond yields fell following the adoption of more accommodating policy stances by global central banks, continuation of weak European economic data and the persistence of low inflation. The Intercontinental Exchange BofA Merrill Lynch Eurozone > 5 year government bond benchmark index rose 3.8% during the quarter. The German 10 year yield fell back into negative territory, ending the quarter at -0.07% as the ECB pushed out guidance in relation to the expected timing of the next interest rate rise.
In currency markets, the Euro weakened due to the pushing out of expectations regarding the next ECB interest rate rise, weak Eurozone economic data and political uncertainty related to Brexit. The Euro ended the quarter at 1.1218 against the US dollar.
Commodities rose 15.0% (17.0% in euro) over the quarter. WTI oil rose 32.4% as OPEC (Organization of the Petroleum Exporting Countries) began to implement new production cuts announced at the end of 2018, tensions in Venezuela restricted oil supplies and production disruptions were also evident across other regions.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), 31 March 2019.