Irish Medical Organisation

Mid-Year Review 2017

Dear Member

As we have now passed the mid-year point, reviewing your portfolio whether it’s a pension or investment, is ever more important.  Some of you have benefited as markets have been in an upward trajectory for over eight years.  This trend has continued in 2017 on the back of improving economic data globally, good corporate earnings growth and the expectation of an expansionary economic policy by the new US administration.  However, from a eurozone investor perspective, gains in international markets have been significantly eroded during 2017 by a strengthening euro currency.

Choosing one of the many funds available on the Irish market can be a tall order.  As some of you know, IMO Financial Services has engaged an external investment consultancy firm, Clarus Investment Solutions, to provide independent and specialised investment support. We asked Clarus to carry out an assessment of funds offered by the six domestic life companies and to produce a set of preferred funds across four different risk bands.

In total, Clarus surveyed 130 funds in the following categories:

Absolute Return
Global Equities

Funds were ranked using a bespoke scoring system which takes account of 20 criteria such as charges, returns, volatility and diversification.  

Investors need to prepare for, but not be deterred by, volatility, which will remain a feature of the landscape for the period ahead.  For this reason ensuring that you review your investment should be part of your annual chores.

We thank you for your support so far in 2017 and look forward to guiding you through the remainder of the year.

Best wishes

Francis McGrath QFA

Sales & Business Development Manager


Global GDP forecasts have continued to recover to around 3.6% this year with a further 3.5% in 2018 expected. This has been a positive back drop for equity markets, with Europe and Asia showing more positive economic data and recovery versus expectations at the beginning of the year.

Earnings growth has been strong with good momentum in both the sales growth and earnings per share; particularly in Q1 where results came in well ahead of analysts’ expectations and the outlook for Q2 earnings growth is also positive. So while equity valuations are not particularly cheap the strength we are seeing in company earnings is supportive of equity markets. Business and consumer confidence are continuing to improve and that also supports improving economic conditions.

A diminished European political risk is now evident in the market. Prior to the French election, equities had marginally fallen and cyclicals stocks had underperformed, whilst more defensive stocks had outperformed. However, once Emmanuel Macron won the preliminary election European equities rallied strongly as investors saw the opportunity to buy the economic recovery in Europe; now that political risk of a Eurozone breakup was reduced. The US equity market has also benefitted from the prospect of tax reform and fiscal stimulus under the US administration, albeit this has waned over the last few weeks.

Equities remain the most attractive asset class from a relative valuation perspective, with projected global earnings growth of 14% for 2017.

Fixed Income

Bond yields have remained very low, particularly in Europe as the ECB has remained dovish emphasising that inflation remains low and wage inflation in subdued. The ECB has been reducing its level of quantitative easing but it is unlikely the ECB is going to increase rates in the near term which is keeping bond yields low. However, European sovereign bonds did come under further pressure towards the end of June and have generally moved to the top of their trading range.

In the US, the Federal Reserve implemented a 0.25% interest rate rise on 15 March, with another more recently at the June FOMC meeting. The market currently expects one more rate rise this year, most likely in December.


ECB policy rates should remain low for an extended period of time due to low inflation, although clearer signs are emerging of a more hawkish ECB. The perception of deflationary risks has diminished and this could impact on ECB policy action.

Valuations are not supportive of most European fixed income as a long-term investment.

The volatility of the global bond market is consistent with the end of a multi-decade period of falling long term interest rates. This could be followed by a long period of choppy price action, but risks are skewed to the upside now.

Inflation, although still at historically low levels, has seen a pick-up due to rising commodity prices and some upside wage pressures in the US. Since investors – and central bankers – have been focused on downside inflation risks for so long, it would not take much change on the upside to produce inflation concerns.

Inflation expectations remain subdued, despite sitting below the historical average. Tapering from the ECB is moving more into focus.


As we have said on many occasions no major country has the inflation justification for actively pursuing a stronger currency. The US has been able to shoulder a stronger currency as other economies such as the eurozone, Japan, and China have pursued weaker currencies actively, or as intended consequences from other policy measures. There are however limits to the US’s tolerance of this.

The Euro currently sits towards the top of its recent 1.05–1.15 trading range with the US dollar, and has strengthened over the course of Q2 on the back of stronger economic growth and more hawkish rhetoric from the ECB.

Japan’s preference for a weaker currency is offset by its strong external position and the limits of the global ‘zero sum game’ of currency manipulation


Oil has suffered over the course of 2017 as the market was caught between the expectation of further production cuts from OPEC and the re-emergence of US shale producers. The US decision to reverse its support for the Paris climate accord also weighed on oil prices.

Economic growth tends to help commodities, and both Gold and Copper have enjoyed a positive first half of the year in local currency terms. The stabilisation of the oil price in the current range could lead to higher prices.

Source: Zurich Investments

Warning: Past performance is not a reliable guide to future performance. The material in this email is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

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