MAPS Quarterly update Q2 2017
IRISH LIFE MAPS® FUND PERFORMANCE
Over the quarter, global stock markets continued their positive momentum (in local currency terms but negative in Euro terms because of Euro strength) from quarter 1, supported by the solid economic and corporate earnings backdrop across most regions as well as the relief at the election of Emmanuel Macron as French President. Eurozone government bonds also rose in value over the quarter, positively influenced by the easing of political concerns after the French Presidential election result and the expected delay in the Italian general election until early 2018.
The table below shows the total returns to end of quarter 2 2017 on each of the five Irish Life MAPS funds 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 urge caution when looking at fund performances over time periods of less than five years.
Source: ‘Moneymate’. Gross returns shown to 30 June 2017, before any fund management charge.
Range of Multi Asset Portfolio Funds
ECONOMIC LOOK-BACK Q2 2017
Most investment returns for Irish investors are quoted in Euro’s as we are a Euro based economy. When we talk about ‘local currency’ however, we mean the stock market performance in the currency of a particular country. For example, the FTSE 100 in the UK might be +4% in Sterling or ‘local currency’ terms but only +2% in Euro due to fluctuations in currency markets. Global stock markets in quarter 2 (in local currency terms) were broadly positive but Euro-based investors (without currency protection) saw their returns impacted because of Euro currency strength versus other major currencies. Changes in economic circumstance or political policy can significantly impact the relative strength or weakness of a currency and there were plenty of examples of both during the quarter. For example, global stock and currency markets reacted favourably to the election of Emmanuel Macron as French President. Conversely, continued political controversies in the U.S. have unsettled markets and the U.S. dollar on occasions. Similarly, the surprise outcome of the Brexit vote and the recent UK general election have not only possibly weakened the UK’s negotiating position with the EU but also their currency relative to the Euro and other major currencies. At times like these, protecting investments against currency moves can make great sense and a big difference.
Policy makers who generally favour relatively high interest rates are known as ‘Hawks’ (‘Doves’ are the opposite) and appear to be wielding more influence across the world’s central banks. The U.S. Federal Reserve raised interest rates for a second time this year in June by 0.25% and indicated a total of three rate increases over 2017 and 2018. They also outlined plans to reduce the size of its balance sheet over the next four quarters – in other words spending to support the economy. Even ECB President Draghi hinted in late June at less policy ‘accommodation’ in the future. On the plus side it means there is both the evidence and confidence of a recovering global economy signalling the end of the need for historically low interest rates to support growth. In time it will also mean savers getting more for their money on deposit versus the near zero rates of return currently available. On the other side it means that borrowing costs are going to rise. Following the financial boom, some countries are still running with high levels of national and/or personal debt, including Ireland. That is a potentially dangerous combination threatening the recovery underway. Rising interest rates are likely to be a reality in the next 18 months, which is broadly a positive development but getting the timing and rate at which they rise correct is a difficult balancing act.
The continued lack of clarity over the Trump administration’s policy agenda has been compounded by more political controversies in recent months around the firing of the head of the FBI, James Comey, the stuttering Republican healthcare bill and the rising noise about the relationship with Russia. We maintain a watching brief as a unique period in history unfolds.
SHARES, BONDS, COMMODITIES AND CURRENCIES
The MSCI AC World equity index rose +3.3% over quarter 2 in local currency terms but fell -2.1% in Euro (€). The U.S. was +3.1% (-3.3% in €), Eurozone was -0.1%, Emerging Markets +6.7% (-0.2% in €), Japan was +6.1% (-1.3% in €), the UK +0.8% (-1.8% in €), Pacific region was +1.2% (-4.7% in €).
In bond markets, the Eurozone >5 year sovereign bond benchmark rose 0.8% over the quarter despite German 10 year bond yields strengthening to +0.47%. The Euro was strong, rising from 1.065 to 1.1426 against the U.S. dollar as European political concerns eased, speculation over tighter ECB monetary policy and political controversies in the U.S. (which contributed to a weaker dollar). Commodities fell -5.4% (-11.4% in €) with oil falling -9.3% as inventory levels rose on the back of the continued rise in U.S. shale oil production and higher levels of oil production in Libya and Nigeria.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), 30 June 2017.
The graphs below split out the performance for each Irish Life MAPS fund since Launch (17 May 2013 ) to 30 June 2017 into each of the component asset classes. For more on these asset classes.
Taking Irish Life MAP 3 as an example, it is up 25.49% over this period. This 25.49% can be broken down as shown below with 10.91% coming from Global Shares, 6.79% from Low Volatility Shares, 3.02% from Bonds, 4.10% from Property, 0.05% from Cash, 0.61% from External Managers, -0.04% from Emerging Market Shares and 0.05% from the Option Strategy recently introduced.
MAP2 Q2 2017
MAP3 Q2 2017
MAP4 Q2 2017
MAP5 Q2 2017
MAP6 Q2 2017
Source: ILIM 30 June 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 - 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 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.
ASSET CLASSES EXPLAINED
Global Shares Q2 2017
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.
Emerging Market Shares Q2 2017
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.
Low Volatility Shares Q2 2017
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.
Option Strategy Q2 2017
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.
Corporate Bonds Q2 2017
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.
Emerging Market Debt Q2 2017
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.
Government Bonds Q2 2017
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.
High Yield Bonds Q2 2017
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.
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 External Managers in quarter 2 2017. 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 March 17)||GMO Real Return Fund|
|$163 billion (30 June 17)||Putnam Multi Asset Absolute Return Strategy(MAARS)|
|$187.6 billion (31 March 17)||AQR Global Risk Parity|
|AQR Style Premia|
|$5.1 trillion (31 Mar 17)||Blackrock FIGO Fund|
|$1.51 trillion (31 Mar 17)||PIMCO Income Fund|
|JP Morgan Asset Management
|€1.84 trillion (31 March 17)||JP Morgan Systematic Alpha|
|Dunn Capital Management
|$3.2 billion (31 March 17)||Montlake Dunn WMA|
|Morgan Stanley Investment Management
|$2.2 trillion (31 March 17)||MS Diversified Alpha Plus|
|$5.3 billion (31 March 17)||DB Platinum MidOcean Fund|