Welcome to my last Investor News for 2014. I have titled the report ‘Is Tranquillity Coming to an End?’ The first bit of the report addresses the experience of the world’s stock markets over recent years, and asks the question whether the period of relative calm that stock markets have experienced is likely to end sooner rather than later. 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.

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INVESTOR NEWS — Quarter 4 2014

Welcome to my last Investor News for 2014. I have titled the report ‘Is Tranquillity Coming to an End?’ The first bit of the report addresses the experience of the world’s stock markets over recent years, and asks the question whether the period of relative calm that stock markets have experienced is likely to end sooner rather than later.

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. It is also possible to ‘mix and match’ these investment funds so that risk and reward profiles are tailored to suit your personal requirements.

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

 

Is Tranquillity Coming to an End?

Investment markets are now in the 6^th year of a bull run, and many indices have attained or are close to all-time highs. So why have markets done so well, and with so little volatility (excepting a brief blip and even faster recovery in late October)? The main reason I believe is the impact of the monetary policies that world’s Central Banks have employed. Faced with a recession, they have provided a glut of liquidity to the banks. During the tenure of former chairman Alan Greenspan, the US Federal Reserve Board’s monetary policy included the implicit understanding that the Fed would step in to provide liquidity in times of market crisis. This became known as the “Greenspan Put,” and it was put into practice at various moments of extreme market stress, beginning with the stock market crash of 1987, and more recently as the “Bernanke Put” in response to the global financial crisis.

These interventions by the Central Banks can cause a moral hazard for investors. When the Central Banks indicate that they will take measures to smooth out jittery markets, this can entice investors to take undue risk in the belief that any negative consequences will be borne by others.  However as the US economy improves, and unemployment falls, there will be less and less reason for the Federal Reserve to intervene. Investors have got used to the unusual tranquillity in the markets, but they should be aware that this period of low volatility is coming to an end.

A concern is that low rates of interest, together with all-time highs in taxation have conspired to force many savers to look to take money off deposit and forced them up the risk curve to seek a return on their hard earned cash. The difficulty now is that with stock market valuations at reasonably high levels, people are beginning to wonder whether the markets are over-valued. I don’t believe that anyone can pick the highest point and lowest point in stock-markets. What I can say is that markets will not continue their upward rise indefinitely…trees don’t grow to the sky….and although shares remain attractive relative to bonds and cash, they are certainly a great deal more expensive than they were 3 years ago. I believe that the markets will be a great deal more volatile in the next few years than they have been in the recent past.   

Before we rush to switch into cash funds, we should remember that long term regular savers should welcome ‘bear’ or falling markets…these are markets where share prices become discounted. Falling share prices may stress out traders and threaten the bonuses of executives and professional investors, but for regular investors, especially those saving for the long term or retirement, buying in a bear market can really provide the ‘oompf’ in your investment return. It is not rocket science – by buying in good times and bad, regular long term savers can benefit from gradually rising markets.

The key, as always, is that an investor should start with a portfolio that is appropriate for their return expectations, risk tolerance, and investment horizon.

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
 

 

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 1.9%. Although the rate is the best in the market, it is difficult to get excited about a 1.9% 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 Sept 2014)	Return % pa	Sector Average %
1 Year	16.6	6.5
3 Year	12.6	6.2
5 Year	9.4	5.1

 

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 Sept 2014)	Return % pa	6 Month Euribor %
1 Year	7.4	0.4
3 Year	6.9	0.6
5 Year	6.1	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 Sept  2014)	Return % pa	Sector Average
1 Year	15.8	9.2
3 Year	19.1	14.2
5 Year	15.5	11.7
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 31st Oct 2014)	Return % pa	Benchmark
1 Year	1.19	2.68
3 Year	-2.95	-0.95
5 Year	1.93	3.88
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 31st Oct 2014)	Return % pa	Peer Average
1 Year	3.3	N/A
3 Year	10.7	N/A
5 Year	10.6	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 Sept 2014)	Return % pa	Peer Average
1 Year	-5.0	N/A
3 Year	-9.5	N/A
5 Year	4.9	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 31st Oct 2014)	Return % pa	Peer Average
1 Year	14.5	N/A
3 Year	7.8	N/A
5 Year	7.1	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	****