Overview: A Positive Turn in the Financial Narrative

The past twelve months have unfolded a remarkably positive story in the financial world. There was a general expectation of inflation coming under control coupled with the anticipation of a drop in interest rates. This scenario propelled stock markets to new heights in 2023, with the technology sector standing out for its exceptional performance.

Half-Year Financial Surge: Equity and Bond Markets

The final six months of 2023, especially the last two, marked significant increases in both equity and bond markets. We observed a 5.96% rise in global equities (measured in Euro terms) and a 3.24% increase in Global Bonds, also hedged to Euro, during this period. This surge resulted in impressive year-to-date returns of 18.39% in equity markets and 4.13% in bond markets. However, emerging markets have remained stagnant in terms of investor profits over the past decade.

The ‘Buy and Hold’ Strategy: A Reflection on Returns

This pattern of robust returns following substantial declines is a recurring theme in investment. It highlights why the ‘buy and hold’ strategy is frequently the most successful approach for investors.

Revival of Bonds: Navigating Higher Interest Rates

The shift towards a higher real interest rate environment posed challenges in the past few years, leading to negative bond returns in both 2021 and 2022. However, 2023 witnessed a rapid increase in policy rates by central banks, the quickest in decades. This resulted in a drop in bond prices and a substantial increase in bond yields. Long-term yields have now returned to levels not seen since before the 2008 Global Financial Crisis.

Irish Government Bonds: A Strategic Investment Move

During autumn, we capitalised on an investment opportunity with Irish Government Bonds, which were trading at a significant discount. Investments worth several million from our clients’ portfolios were made in these bonds. They provided a low-risk and tax-efficient opportunity, locking in returns of about 3% per annum tax-free until 2031, equivalent to over 5% per annum from a taxable bond fund. However, recent shifts in interest rate expectations have diminished this opportunity.

Annuities: Gaining Attraction Amidst Rising Yields

The increase in bond yields also enhanced the attractiveness of annuities. Annuities have become an interesting alternative pension option for our clients which we continue to explore the viability of on a case by case basis with our clients.

Global Affairs and Financial Market Dynamics

It’s crucial to acknowledge the influence of current global events, including conflicts in Palestine and Ukraine, severe weather incidents, political developments, and more. However, it’s important to differentiate these concerns from the investment process. Financial markets react and adjust to known events almost instantaneously, making it challenging to gain an advantage based on current events. The market’s quick response underlines the futility of attempting to ‘beat the market’.

Investment Philosophy: Aligning with Client Needs

Charles D. Ellis, in his book “Winning the Loser’s Game”, aptly summarises the essence of investment management: it’s not about outperforming the market but about meeting the specific needs of a client. This principle underpins our approach to investment management.