MAPS Quarterly update Q4 2015
October to December 2015
The table below shows the returns over the last 12 and 24 months on each of the 5 Irish Life MAPS funds.
While we would always urge caution when looking at fund performance over time periods shorter than 5 or more years, these numbers are still indicative of why Irish Life MAPS works and how it can benefit clients.
Source: Irish Life Investment Managers (ILIM). Returns shown to 31 December 2015, before any fund management charge.
Range of Multi Asset Portfolio Funds
As part of ILIM’s ongoing risk management of the Irish Life MAPS funds, they undertake a yearly strategic review of the funds to ensure they continue to represent the best of ILIM’s thinking and capabilities. The main outcomes of the most recent review, completed during Q4 2015, are outlined below.
1 Asset allocation
ILIM have reduced exposure to low returning assets like cash/bonds in favour of high conviction, high returning assets. The aim is to improve returns while still managing each MAPS fund to its original risk rating.
2 Risk management
Previously the DSC only applied to Developed Market Shares. Since the review, DSC will be applied to a broader global equity index called MSCI ACWI (All Country World Index) which includes about 10% in Emerging Market shares. To further enhance the overall risk management, ILIM are also implementing a partial currency hedging policy across all Irish Life MAPS funds. The aim of this is to reduce potential foreign currency risk going forward.
These changes have now been implemented. ILIM continue to monitor and review the asset allocation and splits within Irish Life MAPS on a regular basis
Economic Look Back
After a summer of discontent for investors and markets alike, there was a welcome rebound into the year end as concerns on the outlook for China temporarily abated. The global recovery in markets was further supported by additional monetary stimulus from central banks and greater expressions of confidence by the US Federal Reserve on their economy, ultimately leading to the first interest rate rise seen in 9 years. However, the significant pick-up in market volatility globally evident in the second half of 2015 looks set to be a feature of markets again in 2016.
China was a big talking point for many investors. Through the fourth quarter, Chinese economic data stabilised, easing fears of a possible hard landing as reliable indicators suggested growth levels running around 5/6%. If sustained, they would be sufficient to prevent a negative impact on the broader global economy. It is a storyline that will dominate 2016 and given the history of market interventions by the Chinese authorities (some more successful than others), it is likely to be a bumpy journey and one we are monitoring very closely. For now, we think the authorities have the situation in hand but we would have to review that position should the data deteriorate significantly.
In Europe, expectations grew for additional monetary stimulus from the European Central Bank (ECB) to offset the perceived risk of lower growth and inflation. Ultimately, in their December meeting the ECB disappointed relative to these expectations which contributed to some weakness in equity and bond markets as the year came to a close..
Meanwhile the US Federal Reserve was much more confident regarding the economic outlook, dropping previous references to concerns of slowing growth in emerging markets on the US economy. Indeed, as a vote of confidence in the recovery, they raised interest rates, which was well received by investors and contributed to gains in equity markets.
Global economic data was somewhat mixed during the quarter but generally improved, particularly from November onwards. Most notable in this regard was the strength in the US labour market and continued recovery in sentiment surveys in Europe.
BONDS & EQUITIES...
Over the quarter, the FTSE All World equity index rose +5.9% (8.1% in €) as Japan gained +9.9% (12.5% in €) and the US rose +6.7% (9.6% in €) as economic data recovered. European equities rose 5.8% (6.1% in €) despite falling in December following the ECB policy disappointment. The UK rose 3.7% (3.7% in €), impacted by its relatively high weight to an energy and commodity sectors under pressure. Emerging markets rose 1.6% (3.5% in €). Bonds generated more modest gains (having already made positive returns during the third quarter) and were supported by ECB bond purchases. The benchmark German 10 year yields rose slightly to 0.63%.
CURRENCIES AND COMMODITIES…
The Euro fell against the US dollar over the quarter to 1.086 as expectations grew regarding additional ECB policy stimulus and increasing expectations of an interest rate rise in the US which finally occurred in December. Commodities fell -16.6% (-14.3% in €) as Brent oil fell -22.9% with supplies and inventories continuing to build and The Organization of the European Exporting Countries (OPEC) failing to agree production cuts.
Source: David Haslam, Head of Retail, Irish Life Investment Managers (ILIM), January 2016.
ASSET CLASSES EXPLAINED
Global Shares Q4 2015
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 2,400 individual companies which operate in 10 different sectors. We use the DSC model (explained on page 3) on Global Shares. Global Shares includes about 10% in Emerging Market Shares.
Emerging Market Shares Q4 2015
The index consists of 2,705 individual companies which operate in 21 different markets.
Low Volatility Shares Q4 2015
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 Q4 2015
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 Q4 2015
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 bonds and have discretion in relation to the index which is tracked.
Government Bonds Q4 2015
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 below 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 (and type)||Target Split|
|GMO Source www.gmo.com||$104 billion Morningstar award winning equity team||GMO Real Return Fund||11%|
|Putnam Source www.putnam.com||$148 billion 75 years of investment experience||Putnam Total Return Fund||8%|
|AQR Source www.aqr.com||$141.4 billion Leading alternative strategy investors since 1998||AQR Global Risk Parity||11%|
|AQR Style Premia||18%|
|Blackrock Source www.blackrock.com||$4.5 trillion* World’s largest asset manager||Blackrock FIGO Fund||7%|
|PIMCO Source www.pimco.com||$1.47 trillion* One of the world’s largest bond funds||PIMCO Income Fund||7%|
|JP Morgan Asset Management Source www.jpmorgan.com||€2.4 trillion* Over 200 years’ experience in advising clients||JP Morgan Systematic Alpha||10%|
|Dunn Capital Management Source www.montlakeucits.com||$1.1 billion* Leading Managed Futures Fund manager for nearly 40 years||Montlake Dunn WMA||11%|
|Morgan Stanley Investment Management Source www.morganstanley.com||$404 billion*||MS Diversified Alpha Plus||17%|
* September 2015; All other data December 2015.
Each Irish Life MAPS fund now has an allocation to property. Currently this allocation consists of a mix of commercial, retail
and industrial property in Ireland. For the percentage of each fund invested in property see the factsheet.