It’s time to look at Investment Funds

While confidence in the markets is steadily returning, recent events such as the UK elections and a possible Greek default have shown there is still a degree of fragility amongst investors and fund managers alike. But amidst these blips there have been some great rates of return achieved. So if these lingering doubts are holding you back from choosing an investment fund, perhaps a Protected Assets Fund is the product for you.

How the Fund sets out to Achieve its Aim

The Protected Assets Fund is designed to provide risk conscious investors with greater choice when it comes to investing their money. This fund offers an investment strategy that has the potential to deliver returns from investing in stock markets but with significantly reduced risks.

Global Equity Returns:

  • Performance is linked to the return of five global stock market indices across Europe, North America, UK, Japan and Emerging Markets.

Explicit Downside Protection:

  • Increases exposure to stock markets during times of stock market stability – to gain from potential positive market performance.
  • Reduces exposure to stock markets during times of stock market uncertainty – to limit exposure from any market falls.
  • Protection is in place that ensures, in any calendar year, the value of an investment (before charges) will never fall below 90% of the highest price in that year. Bank of Ireland (BOI) provides the fund protection to New Ireland. If for any reason, BOI is unable to meet its obligations, investors could lose some or all of their investment.

Historically, shares have offered strong returns for investors – as they have the potential to beat both inflation and deposits over the long term. Investors benefit from both the long term rise in share prices and income received through dividend payments.

The fund aims to take advantage of both the growth and income opportunities offered by investing in stock market indices.

Exposure to Global Stock Markets

The investment return is partly linked to the performance of five mainstream global stock market indices (with dividends included):

Asset Split

By investing via stock market indices, the fund also benefits from:

  • A highly diversified equity-based investment – there is exposure across continents, countries, currencies, industries and companies
  • Reduced risk – as the potential risks involved in choosing a single fund manager are removed

Index Investing

Index investing or passive investing aims to remove the potential risk that comes from choosing a fund manager. By tracking an index the fund tracks the performance of stocks trading on that index. Index funds manage risk by choosing to only track an index, and in turn can be considered less risky than an actively managed fund where a fund manager chooses what specific stocks to invest in across different sectors and geographic regions.

A Proven Approach

Since its launch in December 2010, global stock markets and economies have experienced signifi cant periods of turbulence, periods of market recovery and subsequent outperformance. The chart below demonstrates how the fund has performed since launch:

  • Protecting investors when needed
  • Sharing in global stock market returns

To show this, we have compared the performance of the fund to a basket of global equity indices since its launch. This basket is made up of the five global stock market indices that the return of the fund is linked to – the Eurostoxx 50, S&P 500, FTSE 100, Nikkei 225 and MSCI Emerging Markets (EEM). Exposure to each index is in line with the Protected Assets Fund’s exposure to each of these indices.

Past performance

Looking at the chart we can see:

  • How more stable the performance of the fund has been compared to that of the basket of the indices
  • Late August 2011, highlighted as 1 on the chart, was a very turbulent time for markets. For the fund, as market volatility increased the actual exposure to indices fell and a greater share of the fund was moved into cash to protect investors
  • The chart also shows how the rest of 2011 remained quite volatile for markets, but the fund remained stable
  • From the end of 2011, markets began to recover and as volatility fell and the recovery took hold, highlighted as 2 on the chart, the fund shared in the gains

At PGM, we can help advise you on what fund is best for you, depending on your needs and ambitions. If you’d like more information on this fund or would like to explore what other avenues are available to you, then speak with us today.

 

Warning: The value of your investment may go down as well as up. This fund may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance. If you invest in this fund you may lose some or all of the money you invest.

 

7 years on – what have we learned?

five years experienceThink back 7 short years. A huge US investment bank that few people in Ireland knew much about called Lehman Brothers collapsed and started a shockwave in global banking that had huge ramifications in Ireland. Soon after, we saw the government guarantee scheme, followed by the collapse of Anglo Irish Bank and then the biggest recession in Irish history.

The recession has had enormous consequences for people in Ireland. However, some people have definitely been affected much worse than others. So as individuals, what are the lessons to be learned to best protect us against any future economic downturns?

 

Have a long-term investment strategy

The people who suffered most in the economic collapse were those who had no plan and tried to call the market. These people typically sold assets such as shares or property after significant falls in value and then after suffering so much, were very slow to re-enter the market and missed most of the recovery. In fact, stock markets had pretty much fully recovered in 2011, but many people were out of the market for much of the recovery period and their portfolios did not recover.

People with a plan typically stuck to it and avoided making short-term calls. As a result they did not make large scale asset movements and as a result, they experienced both the collapse, but more importantly the recovery in the markets.

 

Diversification is key

In Ireland in particular, this is one lesson that many people have bitterly learned. No matter what your investment objectives are, it is very important that you protect yourself by not being over-exposed to one asset category in particular.

A decade ago in Ireland, many people began to think that property was a one-way bet; that the only way was up! It was deemed disastrous to be “out of the market” as banks lent money with abandon and people over-extended themselves, buying in Ireland, the UK and then in more exotic places, some of which they knew nothing about. And then the global property crash happened. All those people who were invested only in property bore the brunt of the ensuing pain.

 

Debt must be carefully managed

A lot of the problems in Ireland were exacerbated by the easy access to credit, offered by the banks. Many people subsequently borrowed huge amounts of money, with little thought given to their repayment capability, assuming that capital growth would continue apace. The opportunity to make significant gains was there for highly leveraged individuals as the market continued to grow.

But unfortunately as the market collapsed, these individuals suffered greatly as their losses were multiplied in line with their high levels of leverage. Many have suffered to a point of no return financially and unfortunately face the loss of their assets and indeed in some cases bankruptcy. This has been a salutary lesson for all of us, to ensure our debt levels are manageable.

 

Keep emotion out of it

Investing is an art not a science. If investing were a science then there would simply be a formula for success. We all know this is not the case. Our successes (and failures!) are strongly affected by uncontrollable issues, which emotionally affect us and cloud our judgement. These influences are many. Things such as random events, investor sentiment, market momentum and of course, plain, simple luck all have an unpredictable and inconsistent influence on markets. Analysts are always trying to rationalize these issues, define them and ultimately predict their timing and influence. This is of course nigh on impossible.

The people who tend to suffer most are those who exhibit extreme emotions. Being too greedy is a recipe for disaster in a rising market, as these people often don’t take the opportunity to lock in any gains. In a falling market, excessive fear is also a big enemy as people exit the market and are too fearful to re-enter, thus missing a market recovery. The answer is to make investment decisions on logic alone…both yours and that of your adviser!

 

(Some) cash is king

The economic collapse resulted in a lot of pain for many people, with salary reductions and a large increase in unemployment being two of the most unwelcome effects.  For these people, cashflow became an immediate issue as their non-discretionary outgoings (such as mortgage and other loan repayments) typically did not reduce in line with the fall in income. This caused significant issues for people with no cash buffer as they struggled to deal with banks and other creditors, resulting in significant financial pressure, stress and a dramatic fall-off in their lifestyle. Going forwards, many people have prioritised a cash (or other liquid asset) buffer as one of their investment objectives.

 

Don’t go it alone

As people saw their portfolios collapsing and faced uncertainty about their financial futures, it became more and more difficult to make rational decisions. This is where a trusted voice became extremely valuable and for many, that voice was their financial adviser. They were able to stand back, remove the emotion from the situation and provide clear thinking in a difficult situation. Sometimes the advice given was to do nothing, often the right advice! For other people, their adviser was able to help them face up to their situation and plan on how to deal with it.

Having that second opinion, apart from the positive impact it will have on your financial wellbeing will also seriously reduce your stress levels!
I look forward to any comments you might have – are there any other big lessons to be learned?