OREANDA-NEWS. July 10, 2015.

Overview

  • The net asset value of investment Funds resident in Ireland (IFs) expanded by over 36 per cent in the year to Q1 2015,  rising to €1,452 billion from €1,066 billion in Q1 2014; 

  • IFs benefitted from an unusual combination of buoyant equity and debt security markets with  positive revaluations accounting for three-quarters of the net asset value increase;

  • Real estate funds were the strongest performing fund type in terms of revaluations, while equity funds marginally outperformed mixed and hedge funds;

  • Within bond funds, there was a clear shift towards longer-term maturities reflecting the current low interest rate environment.

  • The impact of quantitative easing on holdings of euro area debt was limited.  There was strong preference for UK debt throughout the period, however. 

The net asset value of investment Funds resident in Ireland (IFs) rose to €1,452 billion in Q1 2015 from €1,275 billion in Q4 2014 and €1,066 billion in Q1 2014.  The scale of this increase, at 36 per cent, is a remarkable outturn even in the context of a historical trend of strong expansion of the industry.  The assets held by IFs rose in value by €286 billion in the year to Q1 2015, driven by rising debt security prices, euro depreciation and, particularly buoyant, equity prices.  Investor inflows were also strong in a historical context, at €99 billion over the same period.  Some signs of potential investor caution were evident, however, with asset prices having risen so strongly.  There was some easing in the scale of investor flows in both bond and equity funds in Q4 2014 and Q1 2015 combined, relative to the previous two quarters.

Differences in rates of expansion between the various fund types were predominantly driven by revaluation changes.  Bond funds experienced positive revaluations of 19 per cent in the year to Q1 2015 whereas the figure for equity funds was 33 per cent, broadly in line with global developments in bond and equity markets.  Equity funds also outperformed mixed and hedge funds, however, albeit marginally, with these funds revaluing by 30 and 31 per cent respectively.  Real estate funds recorded the highest revaluation increases amounting to 44 per cent, reflecting recovering property markets.

The intensification of the low yield environment within debt securities throughout the year to Q1 2015 saw some portfolio movements towards higher-yielding long-term debt.  There was a marked increase in holdings of bonds with residual maturities of 5 to 10 years compared to bonds with residual maturities of less than 5 years and money market instruments.  There was limited movement between sectors, although demand for bank debt was especially strong, reflecting economic recovery.  There was a significant preference for UK debt throughout the year to Q1 2015, which was significantly higher yielding than similarly rated euro area debt reflecting differing outlooks for monetary policies.  Yields in German government bonds, considered a key euro area benchmark, were negative up to seven years maturity by the end of Q1 2015.  Despite very low yields and, more recently, euro depreciation and the introduction of quantitative easing by the ECB, transactions in euro area debt were relatively limited with outflows in Q4 partly offset by inflows in Q1.

Note:

Regular quarterly press releases were suspended for a period as data was subject to significant revisions reflecting new reporting forms, changing fund types and changes to ECB definitions and methodologies.