IRISH LIFE MAPS® FUND PERFORMANCE
Having finished 2018 on a very negative note, global equity markets rebounded strongly in the first quarter of 2019 and continued their positive return in the second quarter, delivering performance of 3.4% in local currency terms (2.3% in euro terms) over the three months and hitting new all time highs in late June. The main developments that contributed to the continued positive returns in markets were the renewed accommodative rate policy expectations from the main central banks, including the U.S. Federal Reserve and the European Central Bank. There was also the end of quarter trade truce between the U.S. and China after the earlier talks breakdown from May onwards. Other trade news was the agreement by the U.S. not to impose tariffs after all on Mexican imports because of supposed lack of action by Mexico on reducing migrant numbers crossing the U.S. border.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 2 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.||3.5%||5.0%||6.7%||8.1%||7.7%|
|5 Years p.a.||3.7%||5.5%||7.3%||8.7%||8.8%|
|4 Years p.a.||3.2%||4.3%||5.1%||6.0%||6.0%|
|3 Years p.a.||3.4%||5.1%||6.6%||8.3%||9.6%|
|2 Years p.a.||2.6%||3.7%||4.4%||5.2%||5.6%|
Source: Moneymate. Gross returns shown to 30 June 2019 before any fund management charge.
ECONOMIC LOOK-BACK Q2 2019
(TEMPORARY) TRADE TARIFFS TRUCE
Up to early May, commentary and rhetoric around the ongoing trade talks between the U.S. and China had suggested that significant progress was being made and that an imminent deal was likely. This optimism however faded when President Trump announced that the trade talks had broken down with the U.S. claiming that China had backed down on previous commitments made during the negotiations. As a result, the U.S. increased tariffs on $200bn of Chinese imports from 10% to 25% with China retaliating by also increasing tariffs. However at a meeting between President’s Trump and Xi at the G20 gathering in Japan at the end of June both sides agreed to another truce. It was agreed that no new additional tariffs will be imposed by either side for the time being and that talks would restart. It was also agreed that the ban on U.S. companies selling products to the Chinese telecoms company Huawei would be lifted while China agreed to increase agricultural imports from the U.S. U.S. trade tariff threats on Mexico were also postponed as the Mexican authorities promised to commit more resources to reducing the flow of migrants to the U.S. with the U.S. saying they will review after 45 and 90 days the progress made with the threat of tariffs being reintroduced.
CENTRAL BANKS – EASY AS SHE GOES
Central Banks are adopting an ‘easy as she goes’, accommodative support policy in response to more challenging economic news flow, renewed trade tensions and below target inflation rates.
A new UK Prime Minister will be elected before the end of July with Boris Johnson currently favourite to succeed Theresa May. With Johnson campaigning on a pro Brexit platform, the risks of a ‘no deal hard Brexit’ have increased. UK MP’s have however on a number of occasions indicated they are against a ‘no deal’ outcome and are expected to try and prevent such a scenario if the new PM were to pursue this path. Uncertainty around Brexit could extend beyond October 31st with either a general election or second referendum possibly being required to ultimately resolve the current impasse.
SHARES, BONDS, COMMODITIES AND CURRENCIES
Over the quarter, the MSCI AC World equity benchmark rose 3.4% (2.3% in euro), reaching new all time highs in late June, despite a mid quarter correction associated with the collapse of trade talks between the U.S. and China and the Mexican imports tariff threat. Equity markets recovered as central banks adopted an easing bias and the good news continued as truces were declared in the above trade rows. The U.S. rose 4.3% (2.8% in euro) as the Federal Reserve guided towards potential interest rate cuts later this year. Europe (excluding UK equities) rose 4.9% (also 4.9% in euro) supported by increasing speculation of further policy support by the ECB and the increased attractiveness of equities relative to bonds. The UK rose 3.3% (but -0.5% in euro) despite continued Brexit uncertainty. Japan lagged again, falling -1.6% (-0.4% in euro) with the stronger Yen being a negative for exporters.
In Bond markets, global bond yields continued to fall as central banks adopted more supportive policy stances in response to deteriorating economic news flow, rising trade tensions and persistent low inflation. The Intercontinental Exchange BofA Merrill Lynch Eurozone > 5 year government bond benchmark index rose 5% during the quarter with the German 10 year yield ending the quarter in negative territory at new all time lows of -0.33% as economic sentiment readings continued to disappoint suggesting subdued levels of growth.
In currency markets, the euro generally continued to weaken against the US dollar over the first half of the quarter falling to a low of 1.1134 against the U.S. dollar. However the Euro ended the quarter higher, rising to 1.1373 against the dollar as the dollar weakened with markets discounting 1% of rate cuts by the U.S. Federal reserve before the end of 2020. Commodities fell -1.4% (-2.8% in euro). WTI oil fell -2.8%. Oil initially fell on increasing growth concerns related to the breakdown of trade talks between the U.S. and China and general deterioration in economic data. The oil price however recovered most of its earlier losses as tensions rose in the Middle East between the U.S. and Iran.
Source: Sean Haverty, Investment Manager, Irish Life Investment Managers (ILIM), 30 June 2019.