Fund Return 2024 - 2025

Fund return to 30 September 2024

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equities and fixed income generally posted positive returns in September. US equities outperformed international equities but underperformed emerging market equities by a wide margin driven by a sharp rebound in Chinese equities. For both emerging market and developed market ex US equities, the weaker US dollar was a significant tailwind.

Growth outperformed value during the month (as measured by the Russell 3000).

The first week of September saw a slight increase in volatility for risk assets due to weaker than expected growth data before volatility fell back to all time lows amid more solid economic data and monetary easing. This led equities and fixed income to finish the month in positive territory. Treasury yields decreased and spreads were lower across the credit spectrum for the month.

Economic data indicate a slowdown but not an imminent recession. Job openings fell to 3-year lows with nonfarm payrolls coming out at only 142k, a low number by recent standards but not an indication of a weak labor market either. The unemployment rate fell slightly. The forward-looking composite PMI for the US increased, driven by services while PMIs in Japan, China, the UK and the Eurozone also were in expansionary territory. This was sufficient for investors to generally stick to the soft-landing narrative after the brief growth scare early in the month.

Headline inflation in the US declined to 2.5% year-over-year, which was lower than expected and the fifth consecutive monthly decline. Core CPI surprised to the upside due to shelter costs rising again. However, Core PCE which is the Fed’s preferred inflation measure surprised to the downside at 2.2%. The Federal Reserve cut rates in September by 50bps, which led to a decline in short term US yields. Inflation in other developed markets also continued to trend downward. The Bank of England held interest rates steady in September as UK inflation has remained at 2.2% for two consecutive months. Headline CPI in the Eurozone decreased to 2.2% (has since fallen to 1.8%), which led to the ECB cutting rates by 25bps, which is the second cut in three months. Japanese inflation increased to 3.0% and the BOJ left rates unchanged but suggested that they will hike rates in upcoming meetings, leading to a rally in the Yen. An increasingly supportive monetary environment in most regions provided an additional tailwind to both equities and bonds.

Geopolitical and political events this month were notable but not market moving. In the Middle east, conflict between Israel and Lebanon escalated but this did not have an impact on oil prices (as of 9/30) which were one of the worst performing asset classes this month and fell for the second month in a row. In the US, presidential candidates Kamala Harris and Donald Trump had their first presidential debate.

The US dollar weakened against all major developed currencies as the Fed cut rates by 50 bps which was at the higher end of expectations with further rate cuts priced in for the rest of 2024. REITs outperformed broader equities given interest rate sensitivity, and commodity performance was strong, despite oil price declines of 7.3%. Listed infrastructure posted strong returns whilst listed natural resources had negative performance.

Outlook

Inflation rose sharply in 2021/22 in the US and elsewhere after a decade of generally being below central banks’ 2% targets. Inflation has fallen considerably since then, although generally remains above target in the developed world, especially when looking at core (inflation excluding energy and food) measures. Central bankers typically focus on core inflation as it has better forward-looking qualities and not moved around by potentially volatile food and energy prices.

Over the medium-to-long run, inflation might deviate from 2% for three main reasons. The first is that the Fed target might change, either driven by the Fed – although it has limited room to do this given legal obligations under the Federal Reserve Act – or because the US government changes the target. The second is that there are one or more economic developments that create persistent upward or downward price pressures. Inflation and inflation expectations fell a little below target in the 2010s because of several factors that all happened at the same time: weak banks post GFC, eurozone debt crisis, austerity, household deleveraging, falling commodity prices and deflationary pressures from China. The Fed tried to offset the impact of these forces but was only partially successful.  The third is that policy makers make persistent errors for a long period. The Bank of Japan (and to some extent the ECB) kept monetary policy too tight for several decades. This caused inflation to undershoot targets for a long time. On the other hand, Turkey and some other emerging economies have kept monetary policy too loose causing inflation to overshoot.

In summary, we think inflation will fall back to target and stay there on average. This does not mean that inflation will always be 2% as economic fluctuations and commodity price moves may naturally cause deviations. There will be powerful forces pushing inflation higher and lower over time and while it is difficult to be precise these may well cancel each other out.

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]