Please find below my Investor News for Quarter 3 2014. I have titled the report 'The Irish Fascination’. The first bit of the report deals with the results of an interesting study on where Irelands rich invest their money. In the second part, I have, as usual, selected my ‘Best Picks’ for investments in each category depending on your Risk / Return profile. I have listed some of my currently preferred funds, according to their risk profile. I am more than happy to provide additional information on these funds, so feel free to give me a call if you want more information. Many of these funds are also available to pension investors on a tax free basis.

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Please find below my Investor News for Quarter 3 2014. I have titled the report 'The Irish Fascination’. The first bit of the report deals with the results of an interesting study on where Irelands rich invest their money. 

In the second part, I have, as usual, selected my ‘Best Picks’ for investments in each category depending on your Risk / Return profile. I have listed some of my currently preferred funds, according to their risk profile. I am more than happy to provide additional information on these funds, so feel free to give me a call if you want more information. Many of these funds are also available to pension investors on a tax free basis.

Each fund is reviewed and rated (from one to five stars, one being poor and five being excellent) across 3 criteria:

• Security of capital
• Access to capital
• Growth potential

The Irish Fascination

The Irish fascination with property continues. I read in the papers, hear it on the radio and watch it on the news, Dublin property prices are up nearly 25% in the past 12 months! Warnings of bubbles by some commentators are dismissed by Government and others. My purpose in this article is not give my opinion on whether or not a bubble is forming in certain areas of the Irish property market but really to comment on our fascination with property as an asset class.

A perversion of traditional economic theory seems to apply to Ireland and property. In traditional economic theory when the price of an asset increases, those that hold the asset become more inclined to sell it, and those that wanted to buy it, want it less. This means that the price of the asset falls to an equilibrium price.

 It seems that in Ireland, when the price of property increases, more people want to buy. On the other hand, prospective sellers of property are less inclined to sell, they assume the price will continue to rise.

So we have a situation in the short term (before buildings can be constructed or land banks developed) where instead of supply increasing when prices increase, supply actually falls and demand increases as prices increase.

The Irish feel more comfortable in owning investment property rather than a portfolio of equities or shares. Many believe that property is the best form of investment. Studies have indicated that Irish high net worth individuals are likely to hold the majority (55%) of their wealth in property, more than in any other country globally. Only 2% of wealth is held in business/entrepreneurial interests while 18% is held in cash, 16% in investments and 7% in tangible assets and collectables.*

When it comes to asset allocation of our wealth, the Irish continue to hold a very high proportion of their wealth in property. The Irish tend to be underweight (relative to rest of developed world) in their holdings of equities and other investments. Indeed although it is not an effective method for maintaining wealth, cash remains more popular (18%) than investments (16%) despite historically low interest rates.

Perhaps the reason why Irish people are underweight in equities is that they are fully aware that the value of their investment will be volatile. It will rise and fall. On the other hand, there seems, despite recent history, an unwillingness to accept that property values are also volatile, and is an asset class that can be difficult to sell on easily.

The costs associated with owning property are increasing, and the tax deductions and reliefs that used be available to landlords have reduced. There is an emergence of professional landlords in the form of companies such as Real Estate Investment Trusts (REITs) which own thousands of residential properties.  Such an emergence could dramatically affect the rental market, changing it from a market where a large number of landlords each own and let a small number of properties, to a situation where a small number of landlords let a large number of properties.

I urge investors to consider diversification when deciding on where to invest their money and not to place too great an exposure to one asset class.

I hope you find this report informative and if you have any queries please do not hesitate to contact me.

Yours sincerely,

Gavin Gilmore
Gavin Gilmore QFA FLIA AITI Chartered Tax Adviser (CTA)
Principal
 

* Barclays Wealth Insights (Origins and Legacy: The Changing Order of Wealth Creation)

Low Risk – PTSB 12 Month Interest First Fixed Term Deposit Account

PTSB are covered by the government guarantee in relation to deposits and are currently offering a one year fixed term rate at 2.15%. Although the rate is the best in the market, it is difficult to get excited about a 2.15% return, when DIRT is at 41%, and for some investors PRSI will also be payable.

Security	*****
Access to Capital	**
Potential for Growth	*

 

Low / Medium Risk – Standard Life Cautious Managed

The fund aims to provide long term growth whilst investing in a diversified portfolio of assets (including equities, fixed interest and property) in order to reduce the risk associated with being solely invested in any one asset class. These assets can be from Ireland and overseas. It aims to be less volatile than traditional Managed Funds, investing a higher proportion in assets that are traditionally less volatile (such as fixed interest assets)

There is active asset allocation within the Fund with an emphasis on capital preservation and focused conservative stock selection. The Fund offers investors exposure to government bonds, high quality equities and cash.

Period (to 30th June 2014)	Return % pa	Sector Average %
1 Year	15.0	7.96
3 Year	10.9	6.06
5 Year	10.0	6.27

 

Security	***
Access to Capital	***
Potential for Growth	***

 

Medium Risk – Standard Life Global Absolute Returns Strategies (GARS) Fund

The key to understanding the GARS Fund is understanding the difference between relative and absolute returns. Most investment funds are managed on a relative return basis – a fund manager aims to beat a market index or average fund in its sector. It can achieve this even though returns may be negative.

Absolute return investing is different because the fund manager aims to produce a positive return over specific time frames.

Period (to 30th June 2014)	Return % pa	6 Month Euribor %
1 Year	4.9	0.4
3 Year	6.3	0.8
5 Year	7.7	0.9

This fund has a very specific target to produce an absolute return of cash + 5% per annum over a rolling three year period. This Fund will have a lower volatility rating than standard Managed Funds as it employs a more varied approach to investment strategies.

Security	***
Access to Capital	****
Potential for Growth	***

 

Medium Risk – Zurich Life Pathways 5

Pathways portfolios are multi-asset funds containing cash, bonds, shares, property, and alternative assets. The split across each of these asset classes is determined by the risk rating of your fund.

Pathways is an actively managed fund and the investment manager has a mandate to alter the risk level of the portfolio. Shares can range from between 30% to 80%, while Cash holdings can constitute between 0% to 30% depending on the Investment managers outlook. The charging on the Pathways funds is competitive for an actively managed, multi-asset investment fund.

Security	***
Access to Capital	****
Potential for Growth	***

 

Medium Risk to High Risk – M&G Global Dividend Fund

The M&G Global Dividend Fund offers investors the opportunity to gain exposure to a worldwide basket of shares. The simple premise of the investment is to choose large blue chip companies which have a history of paying above average dividends. Many of the stocks are household names with good earnings and whose outlook is believed to be still quite positive. The compounding effect of dividends on investment performance can be staggering.

Period (to 30th June  2014)	Return % pa	MSCI AC World
1 Year	14.8	14.4
3 Year	14.1	9.92
5 Year	16.2	12.39
10 Year	N/A	N/A

The performance of the Fund, when considered alongside its peers, is impressive.

Security	**
Access to Capital	****
Potential for Growth	****

 

High Risk – Irish Life Indexed Commodities Fund

This Fund is designed to deliver returns on a broad range of commodities, for example energy, metals and agriculture. The fund is suitable for long-term investors who already have assets such as shares, property or bonds and are looking to invest in something new.

In the past, commodities have provided similar returns to shares for investors. However, commodities tend to perform at different times in the economic cycle. This makes them very attractive because they spread the investment and therefore the risk.

Period (to 30th June 2014)	Return % pa	Benchmark
1 Year	2.55	4.24
3 Year	-1.56	0.57
5 Year	3.07	4.88
10 Year	N/A	N/A

Although the recent performance of commodity markets has not been stellar, commodities should form part of a diversified approach to investing.

Security	*
Access to Capital	****
Potential for Growth	****

 

High Risk – Fidelity EMEA Fund

This Fund offers exposure to the untapped investment opportunities of companies in central, Eastern and Southern Europe (including Russia), Middle East and Africa. The EMEA Area is an emerging economic region that has a GDP greater than China and India combined. It has experienced a sustained period of economic growth over the last decade three times that of Western Europe and the USA.

Period (to 30th June 2014)	Return % pa	Peer Average
1 Year	6.71	N/A
3 Year	4.30	N/A
5 Year	11.85	N/A

The Fund is denominated in the US dollar and so some currency risk / reward is applicable. Returns above are in US dollar. However possible high returns come hand in hand with the potential for significant losses and potential investors in this Fund must be comfortable with the risk and reward profile of such an investment.

Security	*
Access to Capital	****
Potential for Growth	*****

 

Alternative Funds – Zurich Life – Gold Fund

Gold has for centuries been revered for its unique blend of near indestructibility and beauty. Gold’s divisibility, portability and significant rarity led it to become a universal currency. This Fund is a unit-linked fund that gives you the opportunity to gain exposure to movements in the price of gold. It is denominated in US currency and so a currency risk arises to the Euro investor.

Period (to 30th June 2014)	Return % pa	Peer Average
1 Year	2.3	N/A
3 Year	-3.3	N/A
Since launch (17/07/09)	6.9	N/A

Gold has taken a hammering in recent times, after a meteoric rise in 2010 and further rise in 2011. As investors have become more comfortable with risk, they have shifted away from gold and towards equities.

Security	**
Access to Capital	****
Potential for Growth	****

 

Aviva Life & Pensions UK Property Fund

This Fund is invested in UK commercial properties across the office, retail and industrial sectors. The fund gives investors access to a diversified portfolio of 61 UK commercial properties that are let on long term leases and are actively managed to generate a blend of rental income and capital growth.

Period (to 30th June 2014)	Return % pa	Peer Average
1 Year	18.5	N/A
3 Year	7.3	N/A
5 Year	7.2	N/A

This Fund is managed by the Aviva Property Team in UK which manage €28.8 billion in assets making them one of the largest property fund managers in Europe. Selling property can be a lengthy process so investors in the fund should be aware that they may not be able to sell their investment when they want to.

Security	**
Access to Capital	***
Potential for Growth	****