IRISH LIFE MAPS® FUND PERFORMANCE
Despite the ongoing relatively bad newsflow on trade and Brexit, it was a very strong quarter for equity markets with the global stock market delivering a return of 4.8% in local currency terms (4.9% in euro terms).
This positive performance was mainly driven by a positive corporate earnings backdrop and solid economic growth, even if this was concentrated in the US in the main.
Eurozone government bond values however fell over the quarter as core yields increased on reduced trade war fears at various times and some evidence of rising wage inflationary pressures.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 3 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%||5.4%||7.5%||9.1%||8.5%|
|5 Years p.a.||4.2%||6.3%||8.8%||10.6%||10.4%|
|4 Years p.a.||3.9%||5.9%||8.0%||9.7%||9.4%|
|3 Years p.a.||4.1%||6.4%||8.8%||10.9%||12.2%|
|2 Years p.a.||3.0%||5.2%||7.5%||9.5%||10.1%|
Source: Moneymate. Gross returns shown to 30 September 2018 before any fund management charge.
ECONOMIC LOOK-BACK Q3 2018
The tale of the Hare and the Tortoise is credited to Aesop and dates back to before 564 BCE. The moral of the tale has stood the test of time. We all know that sometimes investment returns can race ahead but sometimes they are stubbornly flat or even negative for a period. In recent times, for example, we have experienced both the boom during the Celtic Tiger years and the recession that followed it. There is no imminent sign of a further recession but stock markets are facing several challenges which are as diverse in nature as Chinese growth, Brexit, Donald Trump and the inevitable return of higher interest rates. While economic data continues to improve as the world recovers from 2008, no recovery is ever a straight line. If facing into choppier times ahead, it is more important than ever to keep focussed on the long term. The moral of the story, after all, is that slow and steady can still win the race.
WHEN TWO TRIBES GO TO WAR...
It is hard for investors to ignore the threat of US trade sanctions against any country. It is impossible when that other country is China. Although there have been two separate rounds of tariffs between the two, there has also been progress made elsewhere to help reduce any contagion should tensions escalate. A new North American Free Trade Agreement (NAFTA) trade deal between the US, Mexico and Canada reduces the risk of a possible trade war in North America while a truce between the US and EU means new tariffs won’t be implemented while trade talks continue.
THE END IS NIGH …KIND OF.
The European Central Bank (ECB) have flagged the end of their asset purchase program in December in anticipation of increasing interest rates in late 2019. Cue, collective intake of investor breath. The good news is that they have also indicated they are looking at ways in which they can reinvest the maturing bond holdings that they already have. This is likely to run to some €15bn per month and will continue beyond the beginning of official interest rate increases.
SHARES, BONDS, COMMODITIES AND CURRENCIES
The MSCI AC World equity index rose 4.8% in the third quarter of 2018 in local currency terms (4.9% in euro). The US was the best performer, up 7.5% over the same time period (8.1% in euro) on the back of strong economic and earnings growth. Meanwhile, Europe rose 1.9% (2.4% in euro) whereas Emerging Markets fared less well with a rise of just 0.1% (-0.4% in euro), negatively impacted by trade concerns, rising US bond yields and Turkish problems. Japan rose 6.5% (4.4% in euro) with the re-election of Prime Minister Abe as Liberal Democratic Party (LDP) leader, a relatively positive economic outlook and the weaker Yen which helps exporters. Closer to home, the UK fell -0.4% (-1.1% in euro) with continued Brexit related uncertainty. Finally, the Pacific region rose 0.7% (0.0% in euro), as weaker Chinese growth acted as a drag.
In Bond markets, the Intercontinental Exchange BofA Merrill Lynch Eurozone > 5 year government bond index fell -1.3% during the quarter. German 10 year yields along with global yields rose to 0.47% as wage inflation rose to 2.9% in the US and 2.3% in the Eurozone. Some reduction in trade fears also contributed to these higher yields. Italian 10 year yield spreads against Germany rose as government fiscal deficit proposals disappointed.
In currency markets, the euro was somewhat volatile through the quarter, reacting at times to the tensions in Italy and Turkey. Over the quarter as a whole it fell slightly against the US dollar to 1.1604 having reached a low of 1.13. The euro found some support from the easing in trade tensions above.
Commodities rose 1.3% (1.9% in euro) but WTI oil fell -1.2% with Chinese oil demand weakening as growth slowed. Expectations that non-OPEC (Organization of the Petroleum Exporting Countries) production, mainly from the US, and the earlier announced OPEC production increases would fill the gap from lower Iranian exports from November also contributed to the slight fall in the oil price.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), 30 September 2018.