Fund Return 2021-2022

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

After the April sell-off, developed equity markets stabilized during the second half of May and finished the month with slight gains. Volatility remained high. While the adverse backdrop of tighter monetary conditions, high inflation and a slowing economy remained, there were no major downside surprises during the month. Emerging market equities turned the corner towards month end, as Chinese equities rebounded on optimism that lockdowns were potentially nearing an end.

Bond returns were flat to slightly negative for longer durations, including inflation-linkers. Ten-year nominal yields hardly changed in the US but rose by roughly 20 bps in the UK and Eurozone.

Commodities and energy in particular were once against the best performing asset class which was also reflected in strong equity returns for the energy sector and Latin American markets.

Inflation remained high but seemed to peak in major developed regions except for the UK. US 10-year inflation expectations fell substantially over the month and are close to the Fed’s target again. Monetary authorities maintained their hawkish stance without further major impact on market sentiment as there were no further downside surprises.

Investors became more optimistic throughout the second half of the month amid encouraging results from a number of large US retailers that offset disappointing results by others earlier in the month, leading to a consensus that the US consumer still remains in a strong position.

Geopolitics were less disruptive for markets this month, in the absence of major events and surprises. The conflict in Ukraine dragged on, now more confined to the east of the country. Relations between the US and China were again strained over Taiwan.

The US dollar weakened against most major developed and emerging county currencies, with the exception of the Chinese Renminbi and Indian Rupee. The Euro strengthened as the European Central Bank discussed a potential July rate hike.

Outlook

In our view, market behaviour this year is a rational response to the increase in interest rates and the more uncertain outlook for inflation, monetary policy and economic growth. The range of potential outcomes has widened.

Our base case view is that the monetary policy response priced by markets should be sufficient to curb inflation and that the global economy will avoid a recession over the short-term. However, the risk of worse scenarios has increased. Should the Fed tightening priced in by markets prove too much for the heavily-indebted US economy to bear, inflationary fears could quickly give way to recessionary fears. Conversely, inflationary pressures could become entrenched, requiring the Fed to respond even more forcefully than currently priced by markets. This scenario could end with a recession.

Because of this uncertainty, we do not yet view this correction as providing a good entry point to increase equity or duration exposure. Our dynamic asset allocation views reflect this. We suggest neutral exposure to equities relative to policy, while maintaining a modest underweight to defensive fixed income.

We will continue to monitor market conditions and communicate changes to our views. In the meantime, we remind clients to focus on the long term and consider the points below to help manage through a period of more uncertainty. As Bernard Baruch said, “Now is always the hardest time to invest.”

Notes

Scheme Year to date performance is the period from 1 June 2021 to the most recent month shown.

• 1 Year performance is the cumulative performance of the last 12 months to the most recent month shown.
• Multi Asset Fund performance assumes no lifestyling.
• 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 CERS 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 info@milestoneadvisory.ie or by phone (01) 4068020. Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.

If you require further information please contact the CERS Team at info@cers.ie