Fund Return 2023 - 2024

Fund return to 31 March 2024

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Outlook

Market Developments

2024 started the year with positive global equity and negative global fixed income returns. In January, US equities outperformed international developed and emerging market equities. Growth outperformed value as the prospects of the AI roll-out remained an important narrative. Positive US equity returns were helped by continued economic resilience. US GDP growth was higher-than-expected for Q4 2023. An additional tailwind was the prospect of Fed rate cuts in 2024 as inflation is expected to continue its downward trajectory this year. It is worth noting that the S&P 500 hit a new all-time high, fully recovering from its 2022 drawdown. Yields on the longer end of the curve shifted higher, causing losses for fixed income. Both investment grade and high yield spreads remain near 52-week lows. Outside of the US, major central banks remained on hold and maintained cautious rhetoric. China continues to incrementally support its economy, as economic data remains weak. Its stock market was one of the worst performers this month.

The forward-looking composite purchasing manager indexes (PMI) remained in expansionary territory in much of the developed world, although the Eurozone continued to remain in contractionary territory. Preliminary estimates showed a notable spike in US PMI as manufacturing returned to expansionary territory and the service PMI hit a 7-month high. Growth continues to be led by the service sector in developed markets. Consumer confidence in the US reached its highest level since July 2021 as consumers’ inflation expectations for the year ahead further decreased. While China’s PMI remains in expansionary territory, fears surrounding its largest real estate developer, Evergrande, intensified as a court ruled it must be liquidated.

US headline inflation increased to 3.4% year-over-year, higher than market expectations of 3.2%. Core inflation decreased to 3.9% but also came in above market expectations. Inflation in the UK and Eurozone increased after reaching two-year lows in the previous month. Inflation in Japan fell to its lowest point since July 2022. China continued experiencing deflation for the third consecutive month, the longest stretch since 2009. Major central banks kept interest rates unchanged. In the US, market expectations for rate cuts in March have evaporated, although the market continues to price more rate cuts for 2024 than what the Fed previously signaled. Outside of the US, major central banks reaffirmed their cautious stance.

On the geopolitical front, the conflicts in the Middle East continued to escalate. The market impact from these events was limited. Oil rose 8% from a low base, but that appeared to be driven by supply disruption due to US winter weather and investors anticipating more economic resilience than expected.

The US dollar strengthened against most major developed and emerging market currencies in January. Gold declined during the month as real yields trended up. REITs underperformed broader equities due to their higher interest rate sensitivity. Commodities and natural resources equities had a weak start to the year despite oil prices increasing.

Outlook

US economic growth proved remarkably resilient in 2023 and investors are now hoping that easier monetary policy will continue to serve as a tailwind in in 2024, offsetting less expansionary fiscal policy and potentially lower consumer spending. We expect the US economic growth to slow in 2024, but to avoid a hard landing, especially following the Fed’s latest comments. Economic activity in the UK and Eurozone remained slow in Q4. China’s economy continued to struggle and entered deflation in the fourth quarter but seemed to be touching its bottom with targeted stimulus measures to support the housing market.

US inflation has fallen significantly. Headline CPI was 3.4% year-over-year through December, while core CPI came in at 3.9%, an over two-year low. Inflation is expected to decline further as remaining inflationary components such as shelter roll over. Labor markets have shown signs of softening from tight levels, which also should help inflation fall back to target.

With rates ending the year in restrictive territory, central banks are now openly signalling an end to the hiking cycle. Markets have priced in several rate cuts in the US for the year, starting as early as March while the Federal Reserve’s own rate projections indicate lower rates by the end of 2024. Others such as the European Central and Bank of England remain more cautious while the Bank of Japan, which had kept rates near all-time lows despite rising inflation, has entertained the possibility that it will not enter a hiking cycle.

Our outlook for global equities has improved from a macro and policy standpoint but high US equity valuations remain a concern after strong quarterly returns. We believe the rally in Treasuries has brought yields out of the extremely attractive territory reached in September. For the whole of 2023, US yields rose marginally.

Notes

• Scheme Year to date performance is the period from 1 June 2023 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]