Most Investment Managers acknowledge that these are tricky times for their funds and their customers.
Words like “unprecedented”, “new global order” or “seismic shift” are to the fore in managers’ commentaries.
And rightly so.
The risk of escalation in trade wars and real wars remains a huge threat and leaves us in an environment of likely higher future inflation, pausing investment programmes and global economic downgrades.
The Global economy is slowing and likely to slip further. The IMF and the OECD, amongst others, have reined in their forecasts. Here the ESRI and the Central Bank have also pulled their numbers back. The Central Bank sees domestic demand in the Irish economy stuck at the 2% mark for the next three years due to this global uncertainty and on-going trade tensions.
Against this highly uncertain background, to date stock markets have been somewhat resilient – often reacting to negative news and then rebuilding over time. Global equities, as measured by the MSCI World Index, have seen a drop of 12% at one point, only to be up around 4% in the year so far. Standout markets include Germany which is up 16% in the first half of the year. Market volatility spiked in April but has fallen back since.
The other big factor in Irish investor returns has been currency, as the dollar has weakened significantly versus the Euro, and global indices have become very top heavy with US exposure.
It’s also been important to be in the right sectors of the market so far this year. Looking at the different sectors in the US S&P 500, we see significant divergence in performance. The consumer discretionary area has suffered the most with a decline of over 7%. Healthcare has also been weak losing over 4%. Against this, we have seen a rise of around 8% in sectors like industrials.
So how are Irish investment managers doing in this febrile market environment?
Using Longboat Analytics data, I looked at their highest rated managers (5 star) in both the Balanced Managed Fund and the Global Equity space for the first six months of the year.
In the Managed Fund category, 6 month returns ranged from +0.3% to -2.4%, with most funds clustered together with a small negative performance in aggregate. The better performers were one which highlighted dividend income in their investment process, which seems to have provided some protection.
Within Global Equities, again the average return to date has been a small negative. The range of returns delivered by highly rated managers has been from -3% to +1.5%, with negative returns dominating the sector.
So it’s been difficult for funds to make progress so far in 2025. It’s not surprising given the volatile nature of financial markets.
But we’re probably still in the “phoney war” phase of trade conflicts and yet to see the true impact of higher tariffs on prices and activity. Company analysts in the US are already posting larger cuts than average to second quarter earnings forecasts. Central Banks are wondering if they should pause rate cuts in the face of a tariff-driven inflationary threat.
So it’s still going to be a very noisy backdrop for investors to navigate.
The resilience of markets and of funds so far should not be taken for granted.
Tradewinds 