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Stock markets struggled through much of the first quarter of the year. Some recovery was under way when greeted by the shock result of the Brexit vote for the UK to leave the European Union. Notwithstanding these events, the extensive diversification of assets, strategies and managers in Irish Life MAPS (Multi Asset Portfolio Funds) has delivered positive performance across all funds so far in 2016 and within their expected range of returns.
The table below shows the total returns on each of the five Irish Life MAPS funds since launch (21 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 30 June 2016, before any fund management charge.
Markets calmed in Spring after a volatile start to 2016 and the main asset classes delivered modest positive returns. Concerns over China and global growth eased as economic data improved and developed markets proved quite resilient. Late in the quarter the UK vote to leave the European Union (Brexit) saw the return of Q1 levels of market volatility both in the run up to and in the immediate aftermath of the vote but somewhat reassuringly, markets settled down fairly quickly soon after. It remains to be seen what impact the outcome will have on investor confidence going forward with many having already reduced exposure to UK assets and to sterling in the run up to the vote.
Needless to say, bonds enjoyed a strong period of performance as investors digested the uncertainty that may lie ahead. Despite the low yields available in absolute terms, investors flocked to the safe haven of high grade sovereign bonds with the German 10 year bond yield going negative and reaching all-time lows of -0.16%. Inflation was also persistently low and is expected to remain so despite the rebound in oil prices.
China has experienced a confidence rollercoaster in the last 12 months initiated by some weaker economic data in August last year prompting investor concern that the Chinese growth story was coming to an end. Since then we have seen a series of government led initiatives to bolster confidence which have impacted very quickly and delivered an improvement in some key economic areas like infrastructure, retail sales and industrial production. Confidence, measured by purchasing managers intentions to spend, has returned to its highest level in a year.
In March the ECB announced an expansion to their asset purchase programme to €80 billion per month and broadened the scope of assets it could buy to include non-financial corporate bonds. This was not expanded in Q2 but ‘monitored’ to gauge its effectiveness with the potential to increase in future should the impact of Brexit further reduce inflation expectations. The ECB also indicated interest rates will stay at current or lower levels for an extended period.
The MSCI All Country World Index* rose 1.4% (3.8% in €) over the quarter while the UK rose 6.7% (1.8% in €) despite Brexit. The US market rose 2.6% (5.2% in €) as a result of a smaller rise in interest rates than expected suggesting an improvement in the profit outlook for US corporates. Japan however fell 7.8% (+3.6% in €) as the Bank of Japan failed to meet investor expectations on monetary policy initiatives. European markets fell 0.6% on fears of contagion around Euro scepticism following Brexit. The Eurozone >5 year sovereign bonds were 3.3% at the end of June while the German 10 year bond yield fell to -0.14%. Commodities rose 12.7% driven by Oil (up 25%) and Gold (up 6.8%). The Euro fell against the dollar to $1.11 as investors again looked for safety in the worlds’ largest currency.
The graphs below split out the performance for each Irish Life MAPS fund over the last three years (1 April 2013 to 30 June 2016) into each of the component asset classes.
Taking Irish Life MAP2 as an example, it is up 14.6% over this three-year period. This 14.6% can be broken down as shown with 3.96% coming from Low Volatility Shares, 4.54% from Bonds, 2.12% from Property, 0.06% from Cash, 0.65% from External Managers and 2.62% from Global Shares.
Source: ILIM, 30 June 2016.
The data above is based on Money Mate 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 change in External Managers in 2015, the move from Developed Market Shares to Global Shares etc. It also allows for the impact of tactical allocations over the period.
ILIM track the performance of the MSCI All Country World Index (ACWI)* created by Morgan Stanley Capital International to provide exposure to Global Shares. The index consists of over 2,481 individual companies which operate in 10 different sectors. We use the DSC model on Global Shares. Global Shares includes about 10% in Emerging Market Shares.
ILIM track the performance of the MSCI Emerging Markets Index* created by Morgan Stanley Capital International to provide exposure to Emerging Market Shares. The Index* consists of 2,750 individual companies which operate in 23 different markets.
Using a detailed, quantitative strategy, ILIM choose stocks from the MSCI World 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 around 150 stocks to make up their Low Volatility Shares fund.
ILIM currently track the performance of the Merrill Lynch EMU Large Cap Corporate 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 the JP Morgan Government Bond Index Emerging Markets (JP Morgan GBI EM) Global Diversified Bond Index to provide exposure to emerging market bonds. Within the bond allocation, ILIM choose the proportion to invest in emerging market bond.
ILIM currently track the performance of the Merrill Lynch 1-5yr Eurozone 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.
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. ILIM currently give access to eight leading global real and absolute return managers making up each Irish Life MAPS fund’s External Managers / Alternatives portion. The percentage allocated to External Managers / Alternatives varies for each Irish Life MAPS fund and the latest factsheet will show this percentage.
Within this percentage, the target split across the eight managers is shown as well as details of the managers themselves and the fund 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|
|GMO Source www.gmo.com||$99 billion*||GMO Real Return Fund|
|Putnam Source www.putnam.com||$147 billion**||Putnam Total Return Fund|
|AQR Source www.aqr.com||$153 billion*||AQR Global Risk Parity|
|AQR Style Premia|
|Blackrock Source www.blackrock.com||$4.7 trillion*||Blackrock FIGO Fund|
|PIMCO Source www.pimco.com||$1.5 trillion*||PIMCO Income Fund|
|JP Morgan Asset Management Source www.jpmorgan.com||€1.68 trillion*||JP Morgan Systematic Alpha|
|Dunn Capital Management Source www.montlakeucits.com||$1.03 billion***||Montlake Dunn WMA|
|Morgan Stanley Investment Management Source www.morganstanley.com||$2 trillion*||MS Diversified Alpha Plus|
Information is correct as at *March 31 2016, **May 31 2016, ***June 30 2016.