IRISH LIFE MAPS® FUND PERFORMANCE
Both global equities and bonds rose during the quarter with bonds in particular posting strong gains. Despite another mid quarter correction associated with renewed escalation in trade tensions between the U.S. and China, equity markets recovered as global central banks again provided relief by adopting more accommodative monetary policies to offset the increasing risks to global growth. On the political front, developments on Brexit impacted UK assets but the spill over to global markets was limited. The announcement that Democrats in the U.S. House of Representatives were considering a possible impeachment of President Trump had little impact on markets as the consensus view is that even if formal impeachment proceedings begin, the Senate is unlikely to remove Trump from office. In Italy the formation of a new more EU friendly government proved to be reassuring and led to a reduction in Italian bond yields and spreads.
The table below shows the annualised returns on each of the five Irish Life MAPS funds to the end of quarter 3 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%||8.0%||7.6%|
|5 Years p.a.||3.7%||5.4%||6.9%||8.1%||8.0%|
|4 Years p.a.||3.7%||5.5%||7.0%||8.3%||9.2%|
|3 Years p.a.||3.0%||4.6%||5.9%||7.2%||7.8%|
|2 Years p.a.||2.4%||3.5%||4.2%||4.7%||4.6%|
Source: Moneymate. Gross returns shown to 01 October 2019 before any fund management charge.
ECONOMIC LOOK-BACK Q3 2019
TRUMP TRADE (AND IMPEACHMENT) TALES
Following the G20 meeting at the end of June it appeared that some calm had been restored with respect to the global trade war as the U.S. and China agreed to another truce. The respite did not last long. In July President Trump began to accuse China of not holding up its end of the previous agreements. Despite this the two sides met for trade talks at the end of July, which were described as efficient and productive although no meaningful progress was made. However, shortly afterwards in early August, Trump surprised investors when he announced 10% tariffs would be placed on the remaining $300bn of Chinese imports. There were various retaliatory moves by both sides before sentiment improved through September as it was confirmed that formal negotiations at a senior level would be held from 7 October. A number of concessions were made on both sides. Speculation grew that a temporary or ‘interim‘ deal could be reached but the uncertainty looks likely to continue and is expected to act as a drag on global growth.
CENTRAL BANK SUPPORTS
The U.S. Federal Reserve cut interest rates by 0.25% in both July and September. The European Central Bank (ECB) announced it will restart quantitative easing to support economies by buying €20 billion of bonds per month from 1 November and also reducing its deposit rate by -0.1% to -0.5%.
THE EU SAYS NO
Brexit unpredictability continued throughout the quarter with ‘no deal’ threats by Prime Minister Boris Johnson and Supreme Court rulings against him but at long last proposals materialised from the UK at quarter end to avoid the ‘backstop’. These received a lukewarm but negative response from the European Union so Brexit related uncertainty is expected to continue over coming months.
SHARES, BONDS, COMMODITIES AND CURRENCIES
Over the quarter, the MSCI AC World equity benchmark rose 1.2% (4.6% in Euro). Japan rose 3.6% (7.9% in Euro) supported by the trade deal agreed in principle with the U.S. which is expected to avoid the imposition of auto tariffs and by suggestions that the Bank of Japan could loosen monetary policy further. Europe rose 2.5% (2.9% in Euro) with the weaker Euro boosting exporters while additional monetary policy measures announced by the ECB were also supportive. The Pacific Basin ex Japan fell -2.5% (-1.0% in Euro) with Hong Kong in particular being weak on the back of social unrest and weaker economic releases associated with the ongoing trade tensions. Emerging markets fell -1.9% (+0.2% in Euro) due to the perceived risks to global trade above together with further U.S. dollar strength.
In Bond markets, the ICE BofA Merrill Lynch Eurozone > 5 year sovereign bond benchmark rose 5.6% during the quarter. The German 10 year yield reached new all-time lows during the quarter of -0.74% as global bond yields fell sharply mid quarter as growth concerns increased. Economic releases across the Eurozone in particular were very weak. German yields did rebound to -0.57% by quarter end as sentiment around global growth improved and speculation grew over possible German fiscal stimulus and the lack of policy flexibility left at the ECB. In Italy 10 year spreads against Germany fell sharply to 1.39% as a new more EU friendly coalition was formed.
In currency markets, the Euro continued to weaken against the US$ over the quarter with the EURUSD falling to 1.0899 by quarter end. Despite two interest cuts by the U.S. Fed, the U.S. dollar continued to benefit from higher interest rates in the U.S. and also benefited from its safe haven status in times of uncertainty. Poor economic data across the Eurozone and the ECB’s policy announcements also contributed to the weakness in the Euro.
Commodities fell -4.2% (+0.1% in €). WTI oil fell -7.5% despite the sharp spike in September associated with the attack on Saudi oil facilities. These gains were quickly reversed as it was reported that Saudi production would recover quickly. Oil and commodities in general were negatively impacted during the quarter by the deteriorating demand backdrop due the weakening global growth environment.
Source: Sean Haverty, Investment Manager, Irish Life Investment Managers (ILIM), 30 September 2019.