Fund Return 2024 - 2025

Fund return to 31 December 2024

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Returns were positive for both global equities and fixed income in November. The US dollar rallied along with US risk assets amid general positive market sentiment following Donald Trump winning the presidential election by a landslide. The markets positioned for a wave of deregulation, tax cuts, growth and generally favourable business conditions. US equities outperformed international and emerging market equities by wide margins. US small caps significantly outperformed large caps while growth outperformed value.

Bond yields fell during a volatile month, as markets evaluated the potential impact of tariffs, which was one of the key tenets of the president’s-elect campaign and if enacted have the potential to be inflationary and may require the Federal Reserve to maintain tighter monetary policy. An initial sharp rise in yields was followed by a sizable decline when Donald Trump announced his pick for Treasury Secretary who sees tariffs as a negotiation tool rather than a means to an end.

Outside the election news, economic data indicated a solid albeit slowing economy. The US labour market showed signs of weakening as non-farm payrolls increased 12k in October, well below expectations of 113 k but likely driven by distortions from recent hurricanes and the Boeing strikes. Unemployment remained at 4.1%. Consumer sentiment, measured by the University of Michigan survey, surprised to the upside. Headline retail sales came in higher than expected, showing continued US consumer resilience. These recent economic releases helped investors stick to the soft-landing narrative, although earnings over the holiday season will be closely watched.

Headline inflation in the US rose to 2.6% year-over-year as of October, which was in line with expectations and the first increase in seven months. Core CPI was in line with expectations at 3.3%. Inflation in other developed markets also increased for October. UK inflation rose back above target to 2.3% from 1.7%. In the Eurozone, headline CPI increased to 2.0% from 1.7% in September. Nevertheless, the Fed and BOE cut rates by 25 bps in November, which is the second cut this year for both central banks.

While the US election was in the forefront of political events this month, other meaningful events included Ukraine launching airstrikes into Russia using western-supplied long-range missiles to which Russia responded by firing missiles into Ukraine capable of carrying nuclear warheads. Israel agreed to a cease-fire with Lebanon after pushing the terrorist group Hezbollah away from its borders. None of the events had a significant market impact with oil prices slightly negative during the month.

The US dollar strengthened meaningfully against all major developed currencies, as expectations of future rate cuts in the US were tempered amid the incoming administration's pro-growth agenda. REITs and listed infrastructure underperformed U.S. large cap equities. Commodity performance was slightly positive. While oil was negative, other commodities saw price increases. Gold had its worst month of the year as uncertainty fell following with the US presential election.

Outlook

With the risks between growth and inflation now more delicately balanced, the Federal Reserve (the Fed) and other central banks are cutting interest rates to loosen monetary policy from current restrictive levels back to more neutral ground. Central banks are likely to keep cutting interest rates at various intervals until the road looks a lot smoother, hoping the economy doesn’t get a flat tire on the way.

Despite the rate cuts, we expect growth in the developed world to soften in the near term due to the lagged impact of restrictive monetary policy. However, recession risks are low thanks to the strength of corporate and household sector balance sheets. Japan should grow at a decent pace, driven by domestic demand and higher income growth. Meanwhile, the eurozone faces limited near-term growth catalysts.

Looking further out into 2025, we expect the loosening of monetary policy to boost growth. There are now, however, risks to this base case to both the upside and downside in the US following the election of President-elect Trump. China’s growth outlook is uncertain, although the recent stimulus announcements from the People’s Bank of China and financial regulators highlight their intent to put a floor under growth. Elsewhere in emerging markets, growth should remain robust, benefiting from more accommodative monetary policy and pro-cyclical conditions.

Inflation has declined, and, in 2025, we believe it will walk the final mile to bring it to target levels. Labour markets in developed market economies including the US, have loosened, driven by decreased labour demand and increased labour supply. Wage growth remains somewhat elevated but is expected to normalize, contributing to lower inflation. However, higher tariffs in the US following Donald Trump’s election create upside risks to inflation.

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]