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Over the quarter, investment markets continued the rebound post Brexit and generated very strong returns in shares but Eurozone government bonds fell in value. One of the key drivers of markets during the quarter was the election of Donald Trump as US President. Markets quickly focused on the potential positive impact of his fiscal proposals with the expectation that they would provide a lift to US and global growth.
The table below shows the total returns to end of Quarter 4 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 31 December 2016, before any fund management charge.
Share markets had a strong finish to 2016 and were positive over the last three months (Quarter 4). The election of Donald Trump focused markets on his campaign promises of increased infrastructure spending and reducing corporate taxes which could lift not just US growth prospects, but global growth also. This was very positive for shares and pushed them higher. Over the same period, however, government bonds experienced losses as market expectations of better growth and higher inflation grew, causing yields to rise and prices to fall. The interest rate increase in the US plus the higher return prospects from shares made government bonds less attractive to investors. While yields are slightly higher they are still low in a historic context with German 10 year government bonds still only yielding 0.2%.
It would be hard to comment on Quarter 4 2016 without mentioning the change of guard of leader of the free world. Against all the odds, Donald Trump succeeded in getting elected as the next US President. His style is very different to any holder of the Oval Office in recent memory and has created an uncertain but, for now cautiously optimistic outlook for the US and by extension the rest of the world.
Continued uncertainty and ‘harder’ language around the potential impact of Brexit on UK and European economies has led some forecasters to fear a difficult transition for all concerned. However, towards the end of Quarter 4, a combination of better than expected UK economic data and a softening of the UK government approach to talks helped reduce those fears somewhat.
Currency markets are notoriously difficult to call and can be quite volatile as they are influenced by so many different factors. The US dollar is ‘the reserve currency of the world’ and is used not only to buy goods and services in the US but also globally in the pricing of other assets like gold and oil. The Trump election success coupled with political uncertainties in Europe meant the exchange rate between the US dollar and the Euro swung very much in favour of the dollar over Quarter 4 moving from 1.12 to finish the year around 1.04. In other words, if you have a Euro in your pocket, it used to buy $1.12, it now only buys $1.04.
World shares rose 4.2% while European shares rose 6.2% over the quarter. Further afield, the Japanese share market was up 15% driven by a weakening of their currency, the Yen, versus other currencies. Emerging Markets underperformed falling 1.4%, largely driven by the potential negative impact of some of Trump’s foreign policies on their economies. In bond markets, the Eurozone >5yr bonds fell 4.7%, with German 10 year bonds moving back into positive yields having briefly been as low as -0.12%. The Euro weakened against the dollar but strengthened against Sterling in a volatile period for the currency. Commodities rose 5.8% over the quarter with oil rising by over 11% as OPEC agreed to cut production levels in late November.
The graphs below split out the performance for each Irish Life MAPS fund since Launch (17 May 2013 ) to 31 December 2016 into each of the component asset classes. For more on these asset classes see pages 5-7.
Taking Irish Life MAP2 as an example, it is up 15.20% over this period. This 15.20% can be broken down as shown with 4.20% coming from Low Volatility Shares, 4.23% from Bonds, 2.79% from Property, 0.06% from Cash, 0.26% from External Managers and 3.66% from Global Shares.
Source: ILIM 31 December 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 changes in External Managers, the move from Developed Market Shares to Global Shares etc. It also allows for the impact of tactical allocations over the period.
ILIM track the performance of a large global share index. There are nearly 2,500 individual company shares represented which operate in 11 different sectors. We use the DSC model on Global Shares. Global Shares includes about 10% in Emerging Market Shares.
ILIM track the performance of a broad Emerging Markets share index to provide exposure to Emerging Market Shares. Emerging Market Shares include over 800 individual companies which operate in 23 different markets.
Using a detailed, quantitative strategy, ILIM choose shares from a broad global share 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 over 200 shares to make up their Low Volatility Shares fund.
ILIM currently track the performance of a recognised and leading corporate bond 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.
ILIM currently track the performance of a recognised and leading emerging market 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.
ILIM currently track the performance of a recognised and leading government bond 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.
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. Towards the end of Quarter 3, the Putnam Total Return Fund was replaced with the Putnam Multi Asset Absolute Return Strategy. During Quarter 4, a further fund manager, MidOcean, was given an allocation through the addition of the DB Platinum MidOcean Fund. There is now access to nine leading global real and absolute return managers through 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 nine managers is shown as well as details of the managers themselves and the funds 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|
|$78 billion (30 Nov 16)||GMO Real Return Fund|
|$152 billion (31 Dec 16)||Putnam Multi Asset Absolute Return Strategy(MAARS)|
|$175 billion (31 Dec 16)||AQR Global Risk Parity|
|AQR Style Premia|
|$5.1 trillion (30 Sep 16)||Blackrock FIGO Fund|
|$1.55 trillion (30 Sep 16)||PIMCO Income Fund|
|JP Morgan Asset Management Source
|€1.77 trillion (30 Sep 16)||JP Morgan Systematic Alpha|
|Dunn Capital Management Source
|$956 million (31 Dec 16)||Montlake Dunn WMA|
|Morgan Stanley Investment Management Source
|$2.1 trillion (30 Sep 16)||MS Diversified Alpha Plus|
|$6 billion (31 Dec 16)||DB Platinum MidOcean Fund|