Fund Return 2024 - 2025

Fund return to 30 June 2024

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equities and fixed income generally posted positive returns in July. US equities underperformed international equities due to a weaker US dollar but outperformed emerging market equities. Growth significantly underperformed value during the month (as measured by the Russell 3000).

Investor sentiment remained bullish during the month as inflation eased in developed markets. Notably, headline inflation in the US declined to 3.0% year-over-year, better than expected. This was a second consecutive month of lower-than-expected inflation, contributing to markets now pricing a high likelihood of a rate cut in September.US GDP growth of 2.8% year-over-year surprised to the upside, showing continued resilience in the economy. Nonfarm payrolls for June also surprised to the upside, although previous months were revised downward. The unemployment rate rose to 4.1%, which suggests a slowing labour market. Forward looking purchasing manager indicators remained in expansionary territory in developed markets, with the US composite PMI climbing to a 27-month high. All this contributed to optimism that a resilient yet slowing economy will lead to further reduction in inflation without triggering a recession.

Yields fell across the curve in the US as the prospect of looser monetary policy was priced in, which contributed to fixed income generally outperforming equities. This also contributed to a rotation from large growth stocks into small cap stocks, as investors expect these stocks to benefit most from a rate pivot. Disappointing earnings from large tech company and stalling momentum for the AI story contributed to a rotation from growth into value stocks.

The Federal Reserve kept interest rates unchanged at their July meeting, but primed markets for a possible rate cut in September. US headline inflation eased by more than expected, while inflation in other developed markets continues to trend downward. The Bank of England cut interest rates for the first time since 2020 by 25 bps in early August now that inflation has remained at its 2% target for two months in a row. Inflation in China remained low in June as the country is still emerging from a deflationary period. The ECB held interest rates steady. The Bank of Japan surprised markets by raising rates.

In the US, Donald Trump was injured in an assassination attempt and was subsequently nominated as the Republican candidate while President Biden announced that he was dropping out of the US presidential race and endorsed his current vice president. This contributed to volatility as investors vacillated in their conviction level in ‘Trump trades’ in line with shifting odds of the election outcome.

The US dollar weakened against major developed currencies, especially the yen. Listed real assets outperformed broader equities while commodities underperformed, as oil prices decreased by almost 5%.

Outlook

If the pandemic taught us anything, it is that long-term relationships we had taken for granted can very quickly be reversed. While this can apply to many aspects of our lives, it is especially pertinent to investing, where, for the first time in a number of decades, we have seen a sustained positive correlation between equities and bonds.

For many allocators, this meant revisiting the working assumptions they had used for many years. In the short term, our DAA base case is that (1) the relationship between equity and bonds remains positive as a soft landing is likely achieved, but (2) thereafter, central bank policy will be more closely tied to the business cycle.

Extending the time horizon from a tactical view to a strategic one, it has not been surprising that equity/bond correlation has moved more positive given the dramatic run up in interest rates. However, in a more stable rates environment we would expect correlations to decline to more normal historic levels.

But you do not need correlations to be negative to get portfolio diversification, you just need correlations to be materially lower than one. We retain our view that the crucial point for investors is to ensure that you hold the right portfolio, one aligned to your objectives and definition of risk.

Notes

• Scheme Year to date performance is the period from 1 June 2023 to the most recent month shown.
• Performance shown is net of annual management charge.
• The investment choices offered by the Trustee will be regularly reviewed and may be varied from time to time.
• Before you choose a fund we recommend that you speak to a financial adviser. The CIRT Trustee preferred financial adviser is Milestone Advisory DAC.  You can contact them or your own financial adviser to assist you to review your investment choices. You can contact Milestone Advisory DAC via the website (www.milestoneadvisory.ie), by post: Linden House, 4 Clonskeagh Square, Clonskeagh Road, Dublin 14, D14 FH90, by email ([email protected]), or by phone (01) 406 8020. Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.
• If you require further information please contact the CIRT Team at [email protected]