- Friday 28 August 2020
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Welcome to Autumn 2020 and congratulations on your patience, wisdom and foresight over the last six months!
Ok, most of us probably weren’t any of those things, but what we did was sit tight, accept the fear that market volatility brings (not to mention the real world) and use the reassurance of historical precedence that our investments would regain their value again in time.
Perhaps we didn’t expect it to happen so soon, but that’s worth investigating too!
In this edition of Curran Futures newsletter, we take a look at our own portfolios and their long term benchmark performance against industry peers, the reason why markets have recovered so quickly (and whether it is truly sustainable), plus some important information on changes to our funds that will benefit investors.
Chief Investment Officer
- IN THE MEDIA
We’re delighted that our newly appointed Portfolio Analyst Gary Browne was able to offer his expertise in the Sunday Independent, advising on suitable investment portfolios for different levels of risk and requirement people may have. No doubt this will be the first of many media appearances for Gary in the years ahead!
- BOI CHARGES
Because the ECB is now charging EU banks/credit institutions to hold money on deposit with them, rather than paying out interest, Bank of Ireland has given notice of its intention to commence charging negative interest on all euro cash balances held in pension & corporate accounts from the 1st October 2020.
They, and other institutions, intend to apply a negative interest rate of -0.65% variable per annum and this will apply to pension & corporate accounts held with Bank of Ireland.
We will be engaging with our investors holding cash in large quantities, but if you have any questions about what this means for you, please contact us.
- CHANGES TO PORTFOLIO FUNDS
As your investment managers, our job is to ensure that all of our portfolios contain ‘Best In Class’ funds so that you have the best change of a successful investment experience.
In recent months, an internal ‘Fund Assessment Project’ showed where there was scope to make improvements to our portfolios in terms of:
As our investor portfolios are rebalanced and reviewed in the coming months we will be advising where we believe certain funds can be changed and the rationale for doing so. In every case we will show that the outcome will be in our investors best interests.
MARKET UPDATE | Q2 2020
While those of us who use academic research & historical data to build portfolios are reluctant to ever use the words ‘unprecedented’ or ‘unique’, there is no doubt that 2020 has been one of the most challenging and unexpected years for investors in some time.
It began at the end of February, when the reality of Covid-19’s impact on the ‘Developed World’ hit home, and stock markets worldwide reported their largest one-week declines since the 2008 financial crisis. This included:
- Thursday 12 March, Wall Street experienced its largest single-day percentage drop since Black Monday in 1987.
- 20th April saw Oil Prices turn negative for the first time in history, showing how the lack of people traveling was leading to a decrease in demand for oil.
However, despite all the negativity and uncertainty throughout the first half of this year, by the 18th of August, the S&P 500 closed at a record high, not only wiping out losses from the coronavirus-induced sell-off and returning the market to pre-pandemic levels, but then exceeding them.
This may indicate that the market has calmed, and that the coronavirus has little effect on the market in the long run, but any statement like that should come with a health warning:
- While the S&P 500, among other global indexes, is back to pre-pandemic levels, when you drill into the market itself we see only 38% of stocks in the index have actually made gains in that time.
- The market is hugely driven by a small number of companies and their strong performance is overshadowing the rest.
- This indicate that the market is out of sync, with a small number of companies powering the increase
Ross has written a very interesting piece on this issue and we would recommend all investors read it to get a better understanding of how markets can be driven in unexpected ways.
BENCHMARKING OUR PORTFOLIOS | THE INNOVATE RANGE
- EXTERNAL BENCHMARKING
As an Independent Investment firm with our own ‘Model Portfolios’ – The Innovate Range, clients often wonder why they would move from more well-established and marketed funds. Our answer has always been as follows:
- We are not claiming to do anything different to what well established Passive Investment Funds do.
- We simply use the ‘best in class’ range of available global funds across all asset classes and equity sectors to deliver the optimum investment experience.
- The primary method of out performance against our peers is based on:
- Fundamental Strategy – Passive Vs Active
- Appropriate Asset Allocation for Investor Risk Profile
- Low Cost fund managers & custodians.
- The below chart shows our 100% equity portfolio (Innovate Growth) benchmarked against the closest comparable equity portfolios provided by Irish Life & Pension Companies.
- It displays net return, after charges are taken into account, over the last 5 years.
- You can see that these portfolios are not back to pre-pandemic levels yet, but they have recovered most of the significant losses that they obtained earlier this year.
- INTERNAL BENCHMARKING
Within our own Portfolio Range, the last year has delivered exactly the type of performance and activity that an investor should expect. That is:
- Up to March, investments with a higher % in equities significantly outperformed lower risk portfolios
- When the markets fell, those funds suffered the greatest losses.
- While they have recovered, they are not showing the highest returns year to date, but over an extended period of time the higher risk strategies continue to deliver better returns, albeit with a much more volatile journey.
*if you don’t know what that means, we’d love to meet with you and explain it, along with any other questions you might have.
- 'INNOVATE GREEN' ESG FUND
In response to investor demand over the last 18 months, we were delighted to launch our Innovate Green Portfolio earlier this year. Since then, investors in the fund have enjoyed substantial returns, even with associated volatility.
Our mandate with Innovate Green is to engage with ‘Proactive ESG’ strategies – i.e. funds of companies who are actively working on solutions to our environmental problems. We believe it will continue to deliver strong returns over the next decade as society and governments reassess our ‘corporate relationship’ with the planet we live on.
Performance of the Innovate Green Fund can be seen here in comparison with a Global Equity and Bond Fund.
INNOVATE GREEN COMPARISON WITH A GLOBAL EQUITY & BOND FUND:
Ours is by no means the only ESG / Sustainability fund in the market, but our approach is different. Most funds of this type work by excluding companies that they feel are not Environmentally focused or ESG compliant. This means you are still left with a standard global equity fund simply absent the ‘bad guys’.
Our proactive strategy only include companies that are actively pursuing new technologies with an environmental & ESG focused i.e. delivering solutions to climate, water, energy etc.
This unique approach works, as we compare performance figures against other so-called ESG funds
- LAUNCH OF OUR 'INNOVATE TECH' PORTFOLIO
While ESG and Sustainability are a ‘paradigm’ we are actively exploring, another niche area is that around Disruptive Technology. Our new portfolio in this space will focus on funds that invest in:
- Cloud Computing
- AI & Robotics
While technology companies have led the way for the recovery in Global Equities, we believe that there are areas that are not represented in the large indexes and, for clients who express an interest or preference to access this area, we are delighted to offer a solution.
If you are interested in learning more about our newest portfolio, get in touch.
NEW ARTICLE AVAILABLE ON 'MARKET CAP WEIGHTING'
Ross has written a very interesting piece and we would recommend all investors read it to get a better understanding of how markets can be driven in unexpected ways. Read it here