Fund Return 2024 - 2025

Fund return to 28 February 2025

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equities and fixed income performed positively in January. US equities underperformed international developed but outperformed emerging market equities. Global large caps outperformed small caps while US value outperformed growth.

President Trump started his presidency with many executive orders and other actions, many of which favourable to business including deregulations, especially for energy and technology, plans to build out AI infrastructure and a push for smaller and more efficient government. Tariffs, on the other hand, are an evolving narrative and have led to inertia for business (President Trump announced tariffs on Mexico, Canada and China on February 2, with an immediate one-month deferral for Mexico and Canada following negotiations). Troops were deployed to increase security at the southern border, and deportations were stepped up.

The second major event was the release of DeepSeek, a Chinese-owned AI start-up with similar capabilities as US AI models but lower costs which led to a significant drawdown for NVidia, one of the largest stocks in major US indices as investors wrestled with the broader implications of cheaper and more accessible AI and whether current US tech valuations can be justified in the light of increased competition.

Economic data remains strong. Nonfarm payrolls for December were stronger than expected and unemployment fell to 4.1%. Despite the strong labour market, wage growth cooled from the previous month, reigning in some inflationary pressure. On the other hand, the potential for higher tariffs being imposed over extended periods and impact of reduced immigration over the coming years remain a wildcard for inflation.

Headline inflation in the US rose for the third consecutive month to 2.9% year-over-year in December, mostly due to rises in gas prices. Core CPI rose below expectations. Headline inflation in other developed markets also increased for December. The BOJ increased rates from a low basis, the Fed held rates in their January meeting but noted that the labor market was stabilizing despite inflation remaining elevated. The ECB cut rates by 25 bps amid weak economic growth in Europe

US Yields changed little, as concerns over higher- than -expected inflation were offset by central banks offering more cautious rhetoric and expectations that tariffs will mainly be used as a negotiation tool. Some non-US yields rose moderately.

The US dollar strengthened initially but weakened later in the month, as tariffs were not imposed immediately after inauguration. Rate-sensitive real assets such as global REITs and listed infrastructure still underperformed global equities in January. Commodity and natural resource equity performance was positive as oil and gold prices increased. Bitcoin kept fluctuating around the $100k mark for most of the month, as the Trump administration has expressed a constructive regulatory stance towards crypto and blockchain innovation.

Outlook

Growth in much of the developed world is likely to soften in the near term as the lagged impact of tighter monetary policy weighs on economic activity. However, we do not believe the risk of a recession is high. Instead, we expect DM economies to grow modestly below trend at the end of 2024 and into 2025, although US economic activity remains decent. Strong household and corporate sector balance sheets and easier financial conditions should partially offset the lagged negative impacts from past interest rate hikes, while the current interest rate loosening should lay the foundations for a stronger second half of 2025.

Following the US election, the outlook for growth in 2025 is now somewhat more complicated but really impacts our views as risks to our base case rather than any sort of fundamental change. Upside risks to growth emerge from looser regulation and looser fiscal policy. However, downside risks to growth are likely to come from tariffs, which are negative to growth and disruptive for business.

In 2025, we expect a mixed backdrop for equities, with a supportive economic environment and potential upside from AI supporting earnings. Although partially offset by stretched valuations, equities could still offer higher expected returns compared to cash and may warrant an overweight position. We think opportunities can also be found in Japanese equities and REITs.

Government bond markets, especially the US, have cooled their expectations for aggressive interest rate cuts, and we still believe central banks may take a gradual approach. We are modestly underweight duration as we believe this will help manage the risk that a big increase in yields weighs on other positions in the portfolios, while some of President-elect Trump’s policies could put upward pressure on yields.

Notes

• Scheme Year to date performance is the period from 1 June 2024 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]