Fund Return 2024 - 2025

Fund return to 28 February 2025

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equity performance was flat to negative while fixed income performance was generally positive in February. US equities underperformed international developed and emerging market equities. Global large caps outperformed small caps, while US value outperformed growth, value was slightly positive whilst growth was down -3.7% (as measured by Russell 3000).

Tariffs dominated news headlines in February. The US delayed tariffs of 25% on Mexico and Canada by a month, following concessions on border security. A 10% tariff was imposed on China to which China responded with modest countermeasures. President Trump also announced 25% tariffs on all aluminium and steel imports as well as reciprocal tariffs on trading partners that match their tariffs and informal trade barriers they impose on US companies. At the start of March, an additional 10% tariff on China and the previously deferred tariffs on Mexico and Canada went into effect. Equity markets reacted adversely to tariffs on the days they were announced.

Economic data was mixed. Nonfarm payrolls for January were weaker than expected but still strong with unemployment falling to 4%. US GDP growth came out at 2.3% YoY in Q4 2024, slower than in previous quarters but still robust. US consumer inflation expectations as measured by University of Michigan Survey rose higher in February with the five-year expectations rising to 3.5%, its highest level since 1995. The US services PMI fell into contractionary territory for the first time in two years, but manufacturing PMI rose further into expansionary territory.

Headline inflation in the US rose for the fourth consecutive month to 3% year-over-year in January, above expectations. Core CPI also rose by more than expected. However, the Federal Reserve’s preferred PCE inflation measure moderated to 2.5% in January. Headline inflation in other developed markets also increased for January. Despite rising headline inflation, the Federal Reserve left rates unchanged while the BOE cut rates by 25 bps.

President Trump continued efforts to de-escalate the conflict in Ukraine by holding bilateral talks with Russia and separate negotiations with Ukraine, as well as passing a measure calling for a swift end to the conflict through the UN security council. The direction of negotiations with Ukraine to give the US access to commodity rights in exchange for the financial and military support provided to date and future security guarantees was unclear. Germany held federal elections with its conservative party finishing first, which is likely to form a coalition with one of the other mainstream parties. The ceasefire in Gaza held while the Kurdish militant leader called his militias to disarm. Encouraging news on different geopolitical fronts may have contributed to an almost 4% fall in oil prices during February.

The US dollar weakened during February amid weaker than expected economic data, falling yields and expectations that tariffs will remain a negotiation tool for now. Rate-sensitive real assets such as global REITs and listed infrastructure outperformed global equities in February. Natural resource equity performance was positive even as oil prices decreased. Gold prices had modest returns of 0.5% after strong performance in previous months, outperforming equities but underperforming fixed income.

Outlook

Inflation started 2024 on a bad note, with numerous upside surprises, especially in the US. However, these upsides faded as the year progressed. We expect inflation to continue normalizing in 2025 for a number of reasons.

• First, and most important, labour markets have loosened as shown by the unemployment rate rising and job openings falling. Although wage growth is currently too high, we expect cooling labour markets to mean slower wage growth, further lowering service price inflation.
• Second, we expect shelter inflation in the US to fall further, reflecting the weakness seen in private-sector data on new rents.
• Third, and finally, in developed markets, some prices rose sharply at the start of 2024 in response to the high headline inflation in 2023. With headline inflation much lower in 2024, similar upward surprises should be lower in 2025.

The wrench in all this for US inflation is increased tariffs and an increased fiscal deficit. It remains to be seen whether all of these tariffs are implemented and in what size or whether they are just a negotiation tool.

Notwithstanding this fact, higher tariffs and wider deficits are inflationary in the year the changes are designed but not necessarily thereafter. Therefore, as long as inflation expectations remain anchored, inflation should fall back to target.

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]