Donal Coughlan |
The above performance chart illustrates how various asset classes have performed year-to-date. It shows the performance of some of our benchmark funds in each of the main asset classes.
Equities
It has been a strong year to date for equities; to the end of September, the MSCI World was up c.16% in euro terms. Equities have continued to build on their gains of last year. The key drivers of returns have been strong company earnings coupled with falling inflation, which has allowed central banks to begin cutting interest rates. This, along with stable economic prospects, is providing a tailwind for equities. Additionally, year-to-date index performance has been driven strongly by tech stocks, fuelled by hopes that AI will radically improve productivity. However, the last couple of months may have seen a little bit of a shine coming off this part of the market as some investors have started to rotate towards other parts of the equity market (where valuations are more attractive).
Plenty of challenges still exist in the world, e.g. geopolitics and politics, inflation re-emerging, a potential slowdown in the US economy, and the difficulties of addressing human-made climate change while not derailing global economies. These will undoubtedly cause volatility, but not withstanding this, the prospects for equities still look healthy.
Bonds
Having struggled in the first half of this year, we are finally beginning to see some encouraging signs that positive performance momentum has returned to bond markets. Bonds had struggled in H1 as markets adjusted to the realisation that interest rates would fall at a slower pace than was expected at the beginning of the year. However, despite this recalibration in the first half of the year, we have observed a more encouraging backdrop for bonds in recent months. A more benign inflation environment has allowed the ECB to finally commence its rate-cutting cycle, and the FED has followed suit in September. Year-to-date, corporate bonds have continued to outperform government bonds.
Property
Relative to other asset classes, property continues to face a challenging period (particularly in the office sector). However, there are signs that the worst of the challenges may be behind us with retail property starting to exhibit modest recovery, industrial property continuing to outperform other sectors, and the hope is that vacancy rates in office property will begin to moderate in 2025 on the back of a healthy domestic economy, and expectations that demand/supply dynamics will gradually begin to improve.
Cash
Cash fund returns remain healthy; however, they have started to moderate as the ECB has begun its rate-cutting cycle.
Multi-asset funds
Multi-asset funds have benefitted from the strong performance of equities, and in the last couple of months bonds have also started to contribute more to their performance.
Donal Coughlan
Senior Portfolio Manager & Investment Committee Member