IRISH LIFE INVESTMENTS December 2019 History of Equity Markets 1 - - PowerPoint PPT Presentation

BROKERS IRELAND IRISH LIFE INVESTMENTS December 2019

1 2 3 4 History of Equity Markets 5 6 7 8 Diversification Active vs Passive Behavioural Finance Irish Life Fund Solutions Investment Quiz Market Outlook Summary

HISTORY OF EQUITY MARKETS

4

LONG TERM EQUITY RETURNS – US EQUITIES 1927-2018

1 10 100 1000 10000 30/12/1927 30/12/1929 30/12/1931 30/12/1933 30/12/1935 30/12/1937 30/12/1939 30/12/1941 30/12/1943 30/12/1945 30/12/1947 30/12/1949 30/12/1951 30/12/1953 30/12/1955 30/12/1957 30/12/1959 30/12/1961 30/12/1963 30/12/1965 30/12/1967 30/12/1969 30/12/1971 30/12/1973 30/12/1975 30/12/1977 30/12/1979 30/12/1981 30/12/1983 30/12/1985 30/12/1987 30/12/1989 30/12/1991 30/12/1993 30/12/1995 30/12/1997 30/12/1999 30/12/2001 30/12/2003 30/12/2005 30/12/2007 30/12/2009 30/12/2011 30/12/2013 30/12/2015 30/12/2017

S&P 500

WW2 1939-45 Korean War 1950-53 Post War Boom New Deal 1933-40 Oil shocks 1973 & 79 Vietnam war 1969-72 Black Monday Oct 1987 Stagflation 1973-75 Savings & loans crisis 1986-95 Iraq invasion of Kuwait Tech bubble Tech bubble burst Allied invasion of Iraq Global financial crisis US QE1 Q4 2018 crash Great Depression Reagan era

5

LONG TERM EQUITY RETURNS – US EQUITIES 1900-2018

▪ LT Annualised Return is 9.4% Nominal and 6.4% Real return ▪ Inflation 2.9% p.a.

5.3 6.4 3.7 1.9 0.7 0.8 1 2 3 4 5 6 7 1969-2018 1900-2018 Equities Bonds Bills Note: The three asset classes are equities, long-term government bonds, and Treasury bills. All returns include reinvested income, are adjusted for inflation, and are expressed as geometric mean returns.

6

RELATIVE SIZES OF WORLD STOCK MARKET

Top 3 1899 UK 25% USA 15% Germany 13% Top 3 2018 USA 53% Japan 8.4% UK 6% The evolution of equity markets over time from end-1899 to end-2017

7

HOLDING PERIOD MATTERS

The longer your holding period, the better chance of positive returns Maximum and minimum real returns over different periods

Note: light blue represents current year. Source CRSP. Barclays Research

8

DISTRIBUTION OF EQUITY RETURNS

▪ Distribution of Equity Returns S&P 500 ▪ 3 years below 30% drop

9

POWER OF COMPOUNDING – £100 INVESTED IN 1899

Equities Without reinvesting Income reinvested Gilts Cash 15,185 63 2,706,467 41,873 20,733

$

10

LESSONS FROM HISTORY

DIVERSIFICATION, WHAT DRIVES MARKETS & AVOID THE HEADLINES

12

WHAT CAN YOU INVEST IN? – MAJOR ASSET CLASSES

Cash Bonds Stocks Commodities Property Alternatives

13

WHY DIVERSIFY?

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 1 Fidelity India China 45.60% Indexed European Gilts 10.48% Fidelity India 87.18% Fidelity EMEA 41.64% Indexed Technology 5.14% Fidelity Euro Opps 27.07% Indexed Ireland 37.26% Fidelity India 56.84% Indexed Ireland 33.27% Indexed Emerging Market Equity 20.59% Fidelity China 25.87% Irish Property 6.16% Indexed Technology 22.93% 2 Indexed Pacific Equity 18.77% Indexed Fixed Interest 9.54% Fidelity EMEA 79.31% Fidelity India 39.17% Indexed North American Equity 4.77% Fidelity Spec Sitns 25.86% Indexed Technology 30.34% Fidelity India China 42.35% Indexed Technology 22.19% Indexed North American Equity 19.45% Fidelity India 24.44% Property Portfolio 5.84% Fidelity Managed Intl 22.71% 3 Fidelity Man Inter 11.31% Cash 4.03% Fidelity India China 78.98% Fidelity Man Inter 32.25% Indexed European Gilts 4.08% Fidelity India 25.19% Fidelity Spec Sitns 28.62% Fidel Glob Prop Shares 36.49% Indexed Japanese Equity 21.55% Indexed Pacific Equity 18.82% Fidelity India China 24.41% Fidelity Multi Asset Str Def 5.44% Fidelity Global Prop Shares 19.90% 4 Fidelity Euro Opps 9.40% Inflation Link Bond 2.97% Indexed Emerging Market Equity 73.05% Indexed Technology 32.05% Indexed Fixed Interest 3.61% Fidel Glob Prop Shares 24.61% Indexed Japanese Equity 24.42% Indexed Technology 35.57% Fidelity Euro Opps 20.60% IL/Setanta Global Equity 16.02% Indexed Emerging Market Equity 19.45% UK Property 5.29% Infrastructure Equities 18.03% 5 Indexed Technology 7.46% Indexed Japanese Equity

• 25.03%

Indexed Pacific Equity 67.43% Indexed Pacific Equity 29.10% Indexed UK Equity 2.55% Fidelity EMEA 23.14% Indexed North American Equity 22.26% Fidelity China 28.98% Fidelity Spec Sitns 18.58% Fidelity EMEA 15.50% Indexed Technology 16.72% Indexed Technology 4.58% Indexed North American Equity 17.37% 6 Property Portfolio 6.24% Property Portfolio

• 27.62%

Fidelity China 64.48% Fidel Glob Prop Shares 28.64% Indexed Euro Short Dated Bond 2.42% Indexed Ireland 23.08% Property Portfolio 21.62% Infrastructure Equities 28.55% Property Portfolio 17.18% Infrastructure Equities 15.00% Multi Asset Portfolio 6 14.71% Indexed European Gilts 1.63% Indexed European Gilts 15.40% 7 Indexed European Equity 6.08% UK Property

• 31.70%

Indexed Technology 50.89% Indexed Emerging Market Equity 28.08% UK Property 2.35% Indexed Pacific Equity 20.56% Consensus Equity 20.38% Indexed North American Equity 28.51% Fidelity Man Inter 15.05% IL/Setanta Managed 12.33% Indexed Pacific Equity 13.28% Indexed Fixed Interest 1.06% Indexed Ethical Global Equity 14.73% 8 Cash 4.02% Indexed North American Equity

• 34.11%

Fidelity Euro Opps 45.14% Fidelity India China 27.78% Indexed Euro Corporate Bond 2.24% Indexed European Equity 20.15% Fidelity Man Inter 19.52% Property Portfolio 21.68% UK Property 14.29% Indexed World Equity Fd 11.69% Fidelity EMEA 13.12% Cash 1.01% Fidelity Global Spec Sitns 14.22% 9 Fidelity Spec Sitns 1.17% Consensus

• 34.72%

Fidelity Spec Sitns 43.14% Indexed Commodities 25.54% Indexed Ireland 2.17% Fidelity India Chin 19.97% Indexed World Equity Fd 19.06% IL/Setanta Managed 20.44% Fidelity China 11.86% IL/Setanta Equity Dividend 11.66% Fidelity Spec Sitns 12.53% Fidelity India 0.54% Fidelity Euro Opps 13.85% 10 Indexed Fixed Interest 0.41% Active Managed

• 37.46%

Fidelity Man Inter 40.68% Fidelity Spec Sitns 24.40% Infrastructure Equities 1.25% Fidelity Man Inter 18.16% Fidelity Euro Opps 18.57% Indexed European Gilts 20.43% IL/Setanta Equity Dividend 11.73% Multi Asset Portfolio 6 11.23% Fidelity Man Inter 11.99% Indexed EU Short Dated Bond 0.08% Consensus Equity 4.46%

14

EARNINGS DRIVE MARKETS MARKET CONTROVERSIES ARE A CONSTANT

• -- S&P500 (LHS)
• -- Earnings Per Share -RHS

15

BEWARE HEADLINES – THE DEATH OF EQUITIES

February 2000 The Boom – How Prosperity is reshaping the American Economy

August 13, 1979 The Death of Equities

16

SOCIAL MEDIA CAN MOVE MARKETS

17

KEY LEARNINGS I

Diversification is important – assets have different characteristics Earnings are the driver of shares prices in the long run Tune out the Noise!

ARE MARKETS EFFICIENT? ACTIVE V PASSIVE

19

ARE MARKETS EFFICIENT?

▪ Efficient Markets Hypothesis (EMH) ▪ Yes and No ▪ Efficient Markets mean all information about a stock is in the price already and assets are fairly priced ▪ Is there any point to doing Fundamental Analysis? ▪ Probably are efficient in the long term but not so in the short term – this is where dislocations and bubbles occur

20

ACTIVE OR PASSIVE? PASSIVE

▪ Passive Approach is buy all of the stocks in an index and not conduct fundamental analysis ▪ Tracking error is a key skill here ▪ Replicate the benchmark and get the benchmark return ▪ Majority of active managers underperform the major indices

21

ACTIVE OR PASSIVE? ACTIVE

▪ But some managers do outperform markets ▪ Any manager can outperform over 1 year but can they do it consistently? ▪ Today there is no information advantage but you can have a knowledge advantage – most investors don’t think long term

BEHAVIOURAL FINANCE

23

BEHAVIOUR – WHAT INFLUENCES OUR DECISIONS?

INVESTOR BEHAVIOUR

Loss Aversion

Investors are more averse to losses than to potential returns

Narrow Framing

Making decisions without considering all implications

Mental Accounting

Taking undue risk in one area and avoiding rational risk in another

Diversification

Seeking to reduce risk, but simply using different sources

Herding

Copying the behaviour of others even in the face of unfavourable outcomes

Regret

Treating errors of commission more seriously than errors of omission

Media Response

Tendency to react to news without reasonable examination

Confirmation Bias

Accepting information that confirms already-held views

Anchoring

Relating to the familiar experiences, even when inappropriate

24

VOLATILITY HAS A DIRTY NAME

Seeing through the noise: ▪ Markets suffered double-digit declines in 22 of the last 39 years, yet still ended those years with positive returns 75%

• f the time.

S&P 500 intra-year declines vs. calendar year returns Despite average intra-year drops of 13.9%, annual returns positive in 29 of 39 years

Source: Factset, Standard & Poor’s, J.P. Morgan Asset Management

25

TIMING THE MARKET CAN BE COSTLY

Annual Price Returns S&P 500 1996-2016

7.68 4 1.57

• 0.51
• 2.42
• 4.00
• 2.00

0.00 2.00 4.00 6.00 8.00 10.00 CAGR Excluding 10 best days Excuding 20 best days Excluding 30 best days Excluding 40 best days

Percentage

26

TIMING THE MARKET CAN BE COSTLY

Average Stock Fund Return vs. Average Stock Fund Investor Return

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 Average Stock Fund Return Average Stock Fund Investor Return

Average Annual Return 1994-2013

Investor Behaviour Penalty

• As Warren Buffett wrote in 1991, “the stock market serves as a relocation centre at which money is moved

from the active to the patient.”

27

LESSONS FROM INVESTMENT MASTERS

28

KEY LEARNINGS II

Equities are the best performing asset class over time Volatility is not a bad thing Timing the market is not possible consistently

IRISH LIFE FUND SOLUTIONS

30

OUR FUND MANAGERS

Expertise in designing MAPS, Ireland’s largest retail multi-asset fund (over €5bn AUM, Jun 19) Strong background in Quantitative Solutions Over €79bn in assets under management Track record of long-term successful partnerships Award winning team: Irish Pensions 2018 Passive and Property Manager of the Year Ireland’s leading active fund manager, focus on long-term value investing Recognised by leading global consultants, Morningstar rated funds Over €10bn in assets under management Track record of consistent

• utperformance irrespective of

market conditions Award winning team: Irish Pensions 2018 Equities Manager of the Year Global active investment fund manager with over $412bn assets under management Multiple award winning team: 31 Morningstar awards, 109 Thomson Reuters Lipper fund awards in 12 countries Over 230 investment researchers with a focus on bottom-up research (17,000 company meetings

• r one every 10 minutes on average)

Broad range of investment strategies (multi-asset, regional, thematic etc.)

31

IRISH LIFE MAPS

Irish Life MAPS – Four Pillars to Support Customers

Choice Smoother returns Risk management Peace of mind

Diversification within: ▪ Asset Classes ▪ Managers ▪ Strategies ▪ Currencies ▪ Geographies ▪ Option Strategy ▪ Range of 5 Risk Rated Funds ▪ Annual Review ▪ Rebalancing ▪ DSC ▪ Systematic Currency Hedge ▪ Low Volatility ▪ Equity Option Strategy ▪ Performance ▪ Range of Returns ▪ ILIM ▪ ESG

32

SMART BETA – QUANTS FACTOR-BASED INVESTING

▪ Hybrid of Active & Passive ▪ Capture market inefficiencies in a systematic way ▪ Not market weighted may be instead ranked by volatility, dividends or equal weighted ILIM Quantitative Strategies Group set up in 1996

Multi Factor Risk Control strategies – DSC, Equity Options Global Low Volatility Currency Hedging

33

SETANTA – DEDICATED VALUE INVESTORS

Core Principals Evidence

Selective Risk Averse Long Term Deep Research Consistent Application Incentive Structure High Active Share Strong risk- adjusted returns Low Portfolio Turnover

Established 1998

Owned by Great West Lifeco Part of Irish Life Group

Focused Expertise

Stock pickers, differentiated portfolios

“Value is more than a number” Knowledge advantage

34

LONG TERM TIME HORIZON: WHY DOES IT MATTER?

Current Setanta Global Equity Portfolio ➢ 87 holdings ➢ 51 held for > 5 years ➢ Accounts for 64% of portfolio ➢ Companies have grown in value ➢ Our competition? ➢ Holding period typically <1 year ➢ Alignment of interest: ➢ 80% incentives - 3/5 year performance

5 year time period from 15th May 2012 to 15th May 2017

35

FIDELITY – GLOBAL ACTIVE

DIVERSIFIED OUTCOME FOCUSED FLEXIBLE

Sources of return, risk and yield should be uncorrelated

Portfolios positioned to mitigate event risk and manage volatility

RESEARCH-LED RISK-CONSCIOUS

Clients’ specific needs at the

centre of our approach

A range of strategies, evolving to meet client requirements

Investors must deal with

unpredictable and uncertain markets

Dynamic asset allocation to generate stable outcomes through the cycle

A broad range of research disciplines produces uncorrelated ideas

Well-resourced research team, with a variety of specialisms and expertise

Investors must take a degree of risk

but limit the risk of permanent

capital loss

Taking risk intelligently and consciously is key

Investment Philosophy

Core beliefs and their applications

36

KEY LEARNINGS III

Long term time horizon Active & Passive approaches are not mutually exclusive Smart Beta is a combination

• f both

CAN AN IRISH MANAGER COMPETE?

38

MULTIPLE AWARD WINNING TEAMS WITH STRONG TRACK RECORDS

Fidelity World’s Jeremy Podger – track record of strong

• utperformance

ILIM Indexation process A-rated by leading international consultants Setanta Global Equity

• utperforms the index in 16
• f 18 years

A

HOW WE MANAGE MONEY

40

IRISH LIFE MAPS – INVESTMENT PROCESS

01 02

Idea Generation ▪ Quantitative Strategies Group ▪ Alternative Strategies Team ▪ Asset Allocation Committee

03

Portfolio Solutions Team ▪ Annual Portfolio Modelling Exercise ▪ Determine what makes sense from a portfolio perspective ▪ Size positions appropriately

04

Asset Allocation Committee ▪ Proposed changes presented to the Asset Allocation Committee CIO Sign-Off A robust and structured solution review process

41

IRISH LIFE MAPS – MANAGING RISK

42

IRISH LIFE MAPS – MANAGING RISK

Deliver a return commensurate with each funds targeted risk rating and within the expected range of returns

• Smoother Journey
• Manage for extreme

events

• Returns within an

expected range

Core objective: to deliver risk-controlled investment returns

43

IRISH LIFE MAPS – MANAGING RISK

PROPERTY CASH EQUITIES BONDS ALTERNATIVES Fund Name MAP2 MAP3 MAP4 MAP5 MAP6 Emerging Market Shares 0% 0% 0% 10% 32% Low Volatility Shares 5% 10% 15% 11% 6.5% All Country World Index 11% 22% 33% 45% 45% Equity Option Strategy 3% 6% 9% 12% 5% Infrastructure Equities 1% 2% 3% 2% 1.5% EQUITIES 20% 40% 60% 80% 90% Euro Corporate Bonds 30% 19% 3.5% 0% 0% Euro Government Bonds 8.5% 0% 0% 0% 0% Emerging Market Debt 0% 3% 3.5% 0% 0% Global High Yield Bonds 3.5% 3.5% 3.5% 0% 0% BONDS 42% 25.5% 10.5% 0% 0% EXTERNAL MANAGERS 22% 22% 22% 12.5% 5% IRISH PROPERTY 6% 7.5% 7.5% 7.5% 5% CASH 10% 5% 0% 0% 0% RISK CONTROL STRATEGIES

44

IRISH LIFE MAPS – MANAGING RISK

2017 Oct 2015 ▪ Underweight in emerging market equities Nov 2015 ▪ Max property allocation Dec 2015 ▪ Underweight government bonds ▪ Overweight corporate bonds 2014 Jun 2014 ▪ Property introduced ▪ Low Vol Equities replaces Min Vol Equities 2016 Jan 2017 ▪ Overweight equities ▪ Increased underweight to bonds Feb 2017 ▪ Reduced cash

• verweight

Mar 2017 ▪ Introduced equity

• ption strategy

▪ Extended low volatility to emerging market equities Jan 2016 ▪ Partial currency hedge ▪ DSC extended to include emerging market equities Mar 2016 ▪ DSC triggered Jun 2016 ▪ Underweight global equities Dec 2016 ▪ Neutral global equities ▪ Reduced overweight to property 2015 2017 2018 ▪ DSC triggered in March and October ▪ Introduce infrastructure shares ▪ Residential property added 2018

45

SETANTA INCOME OPPORTUNITIES FUND

› A conservative, value strategy › Appeals to investors seeking above average yield without putting more capital at risk › Lower volatility than a traditional balanced fund

Description

Objectives are: › To generate a targeted income for the investor (measured by the net yield on the Fund) › To maintain the real value of the portfolio (European Harmonised Index of Consumer Prices (HICP) over 5 year period)

46

SETANTA INCOME OPPORTUNITIES FUND

Second Objective: Capital Growth

Assets meet value criteria Long term oriented Risk: Probability of permanent impairment of capital

First Objective: Income Generation

Dividend Stocks Option Income Property Income Bond Income

HEADLINE 02

Multi Asset Portfolio

Objectives

Investment Process

47

SETANTA INCOME OPPORTUNITIES FUND

› Irish Property Crisis (Part 1)

› Fund invested in office and retail assets in 2012 after property collapse.

› Eurozone Sovereign Crisis

› Fund buys peripheral Eurozone debt when mispriced (2010-2011).

› Irish Property Crisis (Part 2)

› Fund invests in residential assets to backdrop of scarce capital for required investment (2014)

› Oil Price Crash

› Fund invests in bonds of oil exposed companies (2016).

› Emerging Market Fears

› Fund takes advantage to buy positions in bonds backed by strong companies (Turkey, Mexico 2017-2018)

Opportunistic Approach to Asset Selection

48

SETANTA INCOME OPPORTUNITIES FUND

High Yield Equities

• Strategy filters broader Setanta philosophy
• Seek stocks with both capacity and commitment to pay dividends
• Expect stocks to have sustainable dividend prospects
• Some sectors and regions offer better income prospects, but fund managers believe in sensible

diversification

• Many ideas in common with the Setanta Global Equity Fund

49

SETANTA INCOME OPPORTUNITIES FUND

Defensive in Times of Strife

Source: Setanta estimates; based on CLI Income Opportunities Fund. Periods shown are those of cumulative declines of greater than 5% in which all individual months record declines.

50

FIDELITY WORLD FUND

01 02 03 04 05 06

May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Nov 17 Feb 18 May 18 Aug 18 Nov 18 Feb 19 May 19

33.4% 30.2% 16.1%

Global equity fund with a developed market focus Concentrated & active portfolio Stock selection backed by depth of FI research team Portfolio managed to deliver across the cycle Long-term career track record 4* Morningstar rating

51

Outperformance of global indices and peers over a long industry tenure

100 200 300 400 500 700 600 800 900 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Indexed Return Jeremy Podger MSCI World MSCI ACWI IA Sector Average

Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. For funds that invest in overseas markets, changes in currency exchange rates may affect the value ofan investment.

Source: Morningstar Direct. Basis: bid-bid, net income reinvested at UK basic rate of tax in UK sterling to 31 May 2019. Jeremy Podger's combined track record of Investec Global Strategy I Acc GBP (01 April 1996 – 31 August 2003), Threadneedle Global Select Z Acc GBP (1 September 2003 – 29 February 2012) and Fidelity Global Special Situations W Acc (1 March 2012 onwards). Note that the MSCI ACWI Gross Return (GR) index is used as the Net Return (NR) index does not have sufficient history. 4.4% 4.5% 5.9%

• Ann. Net Excess Return vs. MSCI ACWI:
• Ann. Net Excess Return vs. MSCI World:
• Ann. Net Excess Return vs. Sector Average:

% of Peers Beaten: 91%

• Ann. Net Excess Return vs. MSCI ACWI:

0.8%

• Ann. Net Excess Return vs. MSCI World:

2.1%

• Ann. Net Excess Return vs. Sector Average:

1.5% % of Peers Beaten: 67%

1000

Investec Global Free Enterprise Threadneedle Global Select

10.1% p.a. 7.8%p.a. 7.4%p.a. 6.4% p.a.

Fidelity

• Ann. Net Excess Return vs. MSCI ACWI: 1.7%
• Ann. Net Excess Return vs. MSCI World: 1.4%
• Ann. Net Excess Return vs. Sector Average:

3.8% % of Peers Beaten: 91%

1000

Threadneedle Global Select

Ratings

JEREMY PODGER – TRACK RECORD

INVESTMENT QUIZ

53

THE NEXT INVESTMENT MASTER?

Brisbane

• Is the next Warren Buffett

in the room?

MARKET OUTLOOK

55

MARKET RETURNS

Source: Bloomberg

▪ Equity rebound from 2018 correction ▪ Policy pivot by US Fed and other central banks supports both equities and bonds ▪ Trade and growth concerns have contributed to ongoing volatility and equity draw downs ytd ▪ Global bonds higher ytd on growth concerns, persistent low inflation and more dovish central banks

Market performance YTD to 31st October

20.1 23.0 16.9 15.2 11.4 22.8 11.5 13.4 1.4 6.6 22.9 26.2 18.2 19.8 13.4 22.9 16.0 13.4 1.4 6.6 13.7 5 10 15 20 25 30 World Equities North America Pacific ex Japan Japan Emerging Market Rest of Europe UK Eurozone Bond 5 yr+ Eurozone Bond 1- 5 yr Investment Grade Corporate EM Debt Euro Local Euro

56

PERFORMANCE

▪ Volatility remains a feature in equity markets ▪ Dovish central banks supported moves to new all time highs this year ▪ Growth concerns and trade war have contributed to draw downs in 2019

MSCI AC World

Source: Bloomberg, October 2019 1000 1050 1100 1150 1200 1250 1300 1350

MSCI AC World

MSCI AC World

Trade fears Dovish central banks Growth fears Trade hopes

57

GLOBAL TRADE / BREXIT

TRADE BREXIT

▪ US and China have agreed a ‘mini’ trade deal ▪ Deal prevents further escalation of trade tensions ▪ Previously planned tariff increases being suspended ▪ China has agreed to increase imports of US agricultural goods ▪ Comprehensive deal however does not seem likely in the short term ▪ Existing tariffs to remain in place ▪ No firm agreements on intellectual property/technology transfer/Chinese industrial subsidies/enforcement mechanisms ▪ Without a full resolution of trade dispute, uncertainties are expected to remain a drag on growth ▪ New Withdrawal deal agreed between the UK and EU ▪ Deal not yet ratified by UK parliament ▪ As a result, Article 50 extended to January 31st ▪ UK general election to be held on 12th December ▪ Polls suggest Conservatives will win a clear majority ▪ A Conservative victory would result in new Withdrawal deal being passed ▪ UK expected to officially leave the EU on 31st January

58

EQUITY MARKET VALUATIONS

Source: JP Morgan, Bloomberg October 2019

▪ Equity valuations are at or above long term average levels ▪ Equity P/e valuation now at the long term average ▪ Market rebound has caused P/e multiple to rise from December lows ▪ Equities expensive on price/book and yield basis v’s long term averages

Global Equity 12 month Fwd P/e Global Dividend Yield

8 10 12 14 16 18 20 22 24 26 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 MSCI AC World 12m Fwd P/E Average +1Stdev

• 1Stdev

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 MSCI World Dividend Yield Median +1Stdev

• 1Stdev

59

EQUITIES: SUMMARY OUTLOOK

Outlook Outlook hinges on economic and earnings backdrop 2019 global GDP growth forecasts lowered to 2.6% Increased fears of growth slowdown could lead to fall in equity markets Equity valuations viewed as being ‘full’ at current levels Base case is limited equity market upside on a 12 month view with risks skewed to the downside Volatility to remain a feature given various risks

60

EUROZONE BOND YIELDS

▪ Yields still close to all-time lows ▪ Peripheral spreads have narrowed on easing of Italian political tensions and expectations of renewed asset purchases by the ECB ▪ Ireland seen as semi core but has been sensitive to Brexit outcome

Source: Bloomberg, October 2019

Eurozone Yields

• 0.66
• 0.61
• 0.43
• 0.18
• 0.44
• 0.61
• 0.42
• 0.19

0.36

• 0.38
• 0.38
• 0.07

0.27 0.99 0.03

• 0.80
• 0.60
• 0.40
• 0.20

0.00 0.20 0.40 0.60 0.80 1.00 1.20 Germany France Spain Italy Ireland

Eurozone Yields

2 yr 5 yr 10 yr

61

EUROZONE INFLATION

Source: Bloomberg, October 2019

▪ Eurozone inflation has been persistently weak ▪ Headline inflation at 0.7% y/y while core at 1.1% y/y ▪ Long term inflation expectations have declined and are close to all time lows ▪ Failure of inflation and inflation expectations to rise has contributed to the ECB providing additional policy accommodation

Eurozone Inflation Eurozone Inflation Expectations

1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2 31/12/2015 31/12/2016 31/12/2017 31/12/2018

• 1
• 0.5

0.5 1 1.5 2 2.5 Headline CPI Core CPI Target

62

12 MONTH FORECASTS

12 Month forecasts Fed funds rate 10 year US yield ECB 10 Year Germany yield Peripheral bond spreads

Current 1.50% to 1.75% 1.69%

• 0.5% deposit rate; QE

reinvestments

• 0.38%

Italy +137 Spain +65 Ireland +41 12 Months 1.50% to 1.75% 1.00% to 1.80%

• 0.5% deposit rate; QE

reinvestments; new LTRO’s; restart QE

• 1.00% to -0.20%

Italy +125/200 Spain +55/125 Ireland +35/75

Source: Bloomberg September 2019

▪ Bond trading ranges have shifted to the downside given growth/inflation concerns and dovish central banks ▪ Growth outcome and central bank policies will be key drivers of yield levels ▪ Core yield upside in Europe capped by additional policy accommodation from the ECB/low growth/low inflation ▪ Base case is yields remain low due to increased policy accommodation and growth concerns ▪ German 10 year yield:

• 0.60% in 12 months

▪ US 10 year yield: 1.30% in 12 months

63

FIDELITY: THE NEXT FIVE YEARS

64

SUMMARY

Stock Research & Selection

Strong risk/return profile Research scale Active & Indexed Long-term track record Flagship funds Diversification Risk management

65

DISCLAIMER

This material is intended for the use of institutional and other professional investors. This document is for the use of the addressees only and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part, for any purpose, without the prior, written consent of Irish Life Investment Managers. The manner of distributing this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves about and to observe such restrictions. By accepting this document, a recipient hereof agrees to be bound by the foregoing limitations. This document is for information purposes only. The information contained herein does not constitute the provision of investment advice. It is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the financial instruments and/or securities mentioned in this document and will not form the basis or part of any contract or commitment whatsoever. Investors should seek independent professional advice and draw their own conclusions regarding suitability of any transaction including the economic benefits, risk, legal, regulatory, credit, accounting and tax implications. Past performance, forecasts and simulated performance may not be a reliable guide to future performance. Investments may fall as well as rise. Irish Life Investment Managers Limited is regulated by the Central Bank of Ireland. Irish Life Assurance plc is regulated by the Central Bank of Ireland. Setanta Asset Management is regulated by the Central Bank of Ireland. Fidelity International is regulated by the Financial Conduct Authority.

THANK YOU

Irish Life Investment Managers Limited is regulated by the Central Bank of Ireland Irish Life Assurance plc. is regulated by the Central Bank of Ireland Past performance, forecasts and simulated performance may not be a reliable guide to future performance Investments may fall as well as rise Changes in currency exchange rates may have an adverse effect on the value, price or income of the product This material is for information only and does not constitute an offer or recommendation to buy or sell any investment and has not been prepared based on the financial needs or objectives of any particular person. It is intended for the use of institutional and other professional investors Tel 353 (0)1 704 2000 Irish Life Brokerage Beresford Court Beresford Place Dublin 1