MAPS Quarterly update Q3 2016
IRISH LIFE MAPS® FUND PERFORMANCE
Over the quarter, investment markets continued the rebound post Brexit and generated strong returns, particularly in shares. The prompt appointment of Theresa May provided initial comfort around issues of government leadership into Brexit but has done little to ease broader market concerns around the impact of Brexit itself.
The table below shows the total returns to end of Quarter 3 2016 on each of the five Irish Life MAPS funds since launch (17 May 2013) and over the last 1, 2 and 3 years. Irish Life MAPS (Multi Asset Portfolio Funds) 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 September 2016, before any fund management charge.
Range of Multi Asset Portfolio Funds
Economic Look Back
CENTRAL BANKS WIDE OF THE MARK…
Central Banks around the world are faced with different yet significant challenges as a result of the two speed nature of the economic recovery. Markets were disappointed with the European Central Bank for neither cutting rates nor expanding the existing support programme. Meanwhile the US Federal Reserve did not raise rates in September when expected to, but indicated an increase in December is increasingly likely. The Bank of England surprised markets positively by re-launching asset purchases and cutting interest rates. The common backdrop is global growth in positive territory (forecast at 2.4 % for 2016) and stronger than feared when recessionary concerns were at their peak in Quarter 1.
MONEY, MONEY, MONEY…
Company Earnings for Quarter 2 were released in Quarter 3 and exceeded expectations by approximately 5% in the US, 3% in Japan and 2% in Europe which provided some support for stock markets although forecasts had been downgraded previously.
Certainty around the early appointment of Theresa May may have helped ease political concerns initially but her conviction that “Brexit means Brexit” has not eased market concerns. That said, UK economic releases were much more resilient than expected but currency markets are watching and sterling is showing signs of potentially weakening as article 50 (that sets Brexit in motion) becomes more of a reality.
A volatile quarter with oil prices trading in a 22% range although ending up only -1.2%. This was largely driven by higher output and rising inventory levels and uncertainty about supply versus demand heading into the key winter period. OPEC has since announced their intention to cap production, supporting the price rebound towards the end of the quarter.
‘Official’ economic data was somewhat mixed during the quarter but finished on an improving note in September. Growth looks to have stabilised at around 6.5%, around the same growth rate predicted for chocolate sales out to 2020!
SHARES, BONDS, COMMODITIES AND CURRENCIES
Investment markets continued the rebound post Brexit and generated strong returns, particularly in shares. In the US, economic data strengthened early in the quarter, easing concerns relating to the global economy. Bonds once again experienced steady gains over the quarter benefiting from persistent low inflation and the continued decline in future inflation expectations. The Eurozone 5 year plus sovereign bond rose 1.1% during the quarter. German 10 year yields fell to new all-time lows of -0.20% before ending the quarter at -0.12%. The Euro rose against the US dollar from $1.111 to $1.124 while Brexit is starting to weigh on the value of sterling.
Over the quarter, the World equity benchmark rose 5.2% (4.2% in euro). Emerging markets rose 7.7% (7.9% in euro) as economic data across Emerging Market countries continued to stabilise and Emerging Market equity funds experienced strong inflows. The UK rose 7.0% (2.8% in euro) as economic releases post Brexit were more resilient than expected while a weaker sterling continued to support exporters. The US lagged, rising 4.1% (2.9% in euro), impacted by growing expectations of a rate rise in December and uncertainty related to the upcoming Presidential election.
The graphs below split out the performance for each Irish Life MAPS fund over the last three years (17 May 2013 to 30 September 2016) into each of the component asset classes.
Taking Irish Life MAP2 as an example, it is up 14.1% over this three-year period. This 14.1% can be broken down as shown with 3.66% coming from Low Volatility Shares, 4.68% from Bonds, 2.42% from Property, 0.08% from Cash, 0.21% from External Managers and 3.05% from Global Shares.
MAP2 Q3 2016
MAP3 Q3 2016
MAP4 Q3 2016
MAP5 Q3 2016
MAP6 Q3 2016
Source: ILIM, 30 September 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.
ASSET CLASSES EXPLAINED
Global Shares Q3 2016
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.
Emerging Market Shares Q3 2016
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 833 individual companies which operate in 23 different markets.
Low Volatility Shares Q3 2016
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.
Corporate Bonds Q3 2016
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.
Emerging Market Debt Q3 2016
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.
Government Bonds Q3 2016
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.
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. 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||$91 billion*||GMO Real Return Fund|
|Putnam Source www.putnam.com||$154 billion**||Putnam Total Return Fund|
|AQR Source www.aqr.com||$172.4 billion*||AQR Global Risk Parity|
|AQR Style Premia|
|Blackrock Source www.blackrock.com||$4.89 trillion*||Blackrock FIGO Fund|
|PIMCO Source www.pimco.com||$1.51 trillion*||PIMCO Income Fund|
|JP Morgan Asset Management Source www.jpmorgan.com||€1.6 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 *June 30 2016, **September 30 2016.