IRISH LIFE MAPS® FUND PERFORMANCE
Despite the negative language on trade, it was a positive quarter for equity markets with the global stock market delivering a return of 2.9% in local currency terms (6.1% in euro terms because of euro weakness), so recovering from the losses in quarter 1.
This positive performance was mainly driven by a significant rebound in the US economy as well as upward revisions to corporate earnings forecasts, with global earnings now expected to grow by over 16% in 2018 compared to expectations of only 10% at the beginning of the year.
Eurozone government bonds reversed some of their quarter 1 gains however with modest losses during quarter 2, as the European Central Bank announced it will reduce monthly asset purchases from €30 billion to €15 billion a month starting in October and then to zero at the end of 2018.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 2 2018 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.||3.6%||5.3%||7.3%||9.0%||8.4%|
|5 Years p.a.||4.2%||6.2%||8.6%||10.5%||10.5%|
|4 Years p.a.||3.9%||5.9%||8.2%||9.9%||10.1%|
|3 Years p.a.||3.3%||4.5%||5.5%||6.7%||6.7%|
|2 Years p.a.||3.6%||5.8%||8.0%||10.6%||12.4%|
|1 Year p.a.||2.2%||3.7%||4.9%||6.6%||7.0%|
Source: Moneymate. Gross returns shown to 30 June 2018 before any fund management charge.
ECONOMIC LOOK-BACK Q2 2018
Donald Trump’s major fiscal/taxation package in late December which boosted the US economic and corporate earnings growth outlook, gave a significant bounce to stock markets at the start of the year. But, the Trump that giveth is also the Trump that taketh! Unfortunately his more recent moves on the introduction of trade tariffs and claims of intellectual property theft have stirred up a hornet’s nest, with China and Europe in particular. Markets believe the potential worst-case scenario of a global trade war is bad for business. Trump’s more extreme position could be his classic negotiation tactic - float an extreme position but step back from the cliff in return for some big concessions. The saving grace may be that all sides would probably prefer to negotiate a settlement if at all possible.
No substantial progress has been made in the Brexit negotiations between the EU and UK following on from the March agreement in principle to a transition deal. Lack of progress on the most thorny issues of the Irish border question and the customs union have led to the process stalling. Complications on the UK side, including divisions in the cabinet and the Conservative Party, have also resulted in the British government being unable to formulate a definitive policy stance. This has all contributed to uncertainty regarding the eventual timing and format of the UK’s exit from the EU.
A FUSILLI COMMENTS
Paola Savona is a former Italian Industry Minister, economist and university professor, which might have made him seem an ideal candidate to head the Italian Economy Ministry in the new Italian government. Unfortunately for him, he is also a Eurosceptic and when put forward for the position by the far-right League and the anti-establishment 5 Star Movement, the appointment was vetoed by the President, Sergio Mattarella. The decision was part-based on comments made previously by Mr Savona questioning whether Italy should ditch the euro as its currency and ultimately, it’s membership of the EU. The 81 year old was instead appointed Minister of European Affairs.
SHARES, BONDS, COMMODITIES AND CURRENCIES
The MSCI AC World equity index rose 2.9% in the second quarter of 2018 in local currency terms (6.1% in euro). The US was a relatively better performer, up 3.5% over the same time period (9.1% in euro) with positive economic data and earnings being supportive and trade tensions being a drag.
Meanwhile, Europe rose 2.7% (2.9% in euro) but emerging markets bucked the general trend with a fall of -3.4% (-2.9% in euro), negatively impacted by the stronger US dollar. Japan rose 1.2% (2.4% in euro) despite economic data disappointing and political scandals impacting sentiment. Closer to home, the UK rose 9.4% (8.5% in euro) despite the ongoing Brexit related uncertainty as the energy sector benefited from higher oil prices and there was a rise in corporate activity levels. Finally, the Pacific region rose 4.5% (7.3% in euro), as export and production data improved.
In Bond markets, the Intercontinental Exchange BofA Merrill Lynch Eurozone > 5 year government bond index fell -1.1% during the quarter. German 10 year yields fell to 0.30% with ‘the flight to safety’ associated with the Italian political crisis and the more benign than expected guidance from the European Central Bank on timing of an interest rate rise (‘’ interest rates unchanged until at least through summer 2019’’).
In currency markets, the euro fell against the US dollar to 1.1684 as European economic data weakened relative to US figures and the US Federal Reserve increased its guidance for the expected number of rate rises in the US during 2018, unlike the benign European Central Bank guidance mentioned above.
Commodities rose 8.0% (13.8% in euro) with WTI (West Texas Intermediate) oil benchmark up 14.2% as the US pulled out of the Iranian nuclear deal, re-imposed a full set of sanctions on Iran and demanded that all countries cease importing Iranian oil by November. An agreement by the Organization of the Petroleum Exporting Countries (OPEC) to increase oil production by up to one million barrels per day over the second half of the year was announced later in the quarter.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), 30 June 2018.