Portfolio Manager Commentary

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The New Ireland Fund, Inc. Portfolio Manager Commentary Quarter ending January 31, 2017

Performance Review

The New Ireland Fund Inc.'s ("Fund") returns are summarized in the table below:

  Period to January 31, 2017


IRL NAV Return

IRL Relative to Benchmark





  Fiscal Year to date




  Calendar Year to date




  1 years




  3 years




  5 years




  Since inception




*Benchmark is the ISEQ up to 30 July 2015, combined with MSCI All Ireland Capped Index (“MSCI Ireland”) from August 1, 2015.
The performance of the MSCI Ireland Index compared to peer global indices generally held it’s own over the quarter but was a material underperformer over 12 months where it basically has tread water at +2.8% in US dollars.

The US Presidential election was of course the main focus for most markets during the quarter and, perhaps surprisingly, markets reacted well to the election of Mr Trump, believing that his proposed programme of corporate and personal income tax cuts, helped by increased spending on US infrastructure, would be beneficial for the US economy and more particularly for the US corporate sector.

Bond markets, in contrast to equities, had a very poor quarter, with European government bonds falling by almost 5% (as measured by the JP Morgan over 5-year Government Bond Index). Irish bonds were similarly affected for the first in many quarters.

Irish Market Review

The portfolio started the new fiscal year with a stronger quarter. The market was driven mainly by a bottom up eclectic mix of individual stock returns rather than a macro top down driver. Since June 2016, Brexit has remained an overhang on the market and during the most recent quarter the election of Trump, net-net, has raised more concerns for Ireland’s outlook during a Trump presidency. Outperforming stocks during the quarter had a more cyclical/macro revelation driver in common. On the underperforming side it was the more defensive sectors such as food or pharmaceuticals.

Major Fund stock capital moves (in USD terms)

  Quarter ending January 31, 2017       (MSCI IRL +6.9%)

  Strongest portfolio returns

  Weakest portfolio returns

  Bank Of Ireland


  Greencore Group


  Smurfit Kappa Group


  Green REIT




  Malin Corp


  Ryanair Holdings


  Kerry Group


  Saint Gobain


  One Fifty One plc


Irish Economic Review

Official GDP statistics show the economy continued to grow strongly. However, as discussed in previous reports, GDP statistics for Ireland have become somewhat misleading. The issue is GDP and GNP are no longer as useful in measuring the real change of activity in an Irish economy, which is very open to international capital flows. Fortunately, there are other indicators which give us a good sense of what really is happening in the economy, as below.

Retail Sales
Retail sales continue to show solid growth, but the growth has been falling in recent months. That is not particularly surprising, however, considering the very high rate of growth for several years, combined with the heightened economic uncertainty experienced since the UK’s “Brexit” decision. Consumer confidence is at a high level, but has flattened out recently.

Manufacturing and Services Sectors
The pattern of business confidence is somewhat different to consumer confidence. Business confidence fell quite sharply in the immediate run-up to, and aftermath of, the UK electorate’s vote to leave the European Union. But, after a trough in July, it has recovered quite well.

Labor Market
There continues to be a steady trend downwards in unemployment. The unemployment rate has declined to 7.1% (January data), down from a peak of 14.9%. Ireland’s unemployment rate is substantially below the euro zone average. Encouragingly, the detail of the employment statistics shows most new jobs being full-time/permanent rather than temporary.

Credit Growth
Credit to households and non-financial corporations continued to contract. The overall pattern is that while growth remains quite strong, it is certainly not being financed by debt. Both the corporate sector and the household sector continue to reduce their indebtedness, as they have done continuously since 2009.

Government Finances
The government deficit was about 0.9% of GDP in 2016, a one percent of GDP improvement relative to 2015. The debt/GDP ratio is estimated to have peaked in 2013, at about 120%, and we estimate it stood at 76% by the end of 2016. The 2017 Budget, announced in October, contained a package of tax cuts and expenditure increases that was broadly in line with expectations.

The decision of the UK electorate to vote to leave the European Union has significant ramifications for the UK, European, and Irish economies and markets. There is still very considerable uncertainty about the practicalities of the UK’s exit. The scale of the negative impact on Ireland is such that it will be noticeable, but not dramatic. We estimate that growth may be in the region of 0.5% lower per year, which is relatively modest in the context of an economy that is probably growing at a 5% pace.

New US Administration
The new administration in the US has, at the time of writing, taken little firm action as yet in terms of changes to trade policies or to corporate taxes. But President Trump certainly promised major change during the campaign, and so significant change is likely over the next 6-18 months.

At the time of writing, political uncertainty is rearing its head once again in Ireland with the minority government support under challenge. This would bring some further political uncertainty at a critical time when Brexit negotiations will be commencing and not helpful for the market if it turns out to be the case.

Irish Economic Outlook
For 2016, the Central Bank of Ireland is forecasting GDP growth of +3.4% (down from its previous forecast of 4.5%) reflecting the strong outlook for both capital investment (+5%) and consumer spending (+3.4%). For 2017, the Central Bank is forecasting 2.5% growth as capital spending rebounds somewhat but consumer spending comes under pressure from the uncertainty surrounding Brexit. We believe that these forecasts are reasonable but that the risks around forecasts are higher than normal at this time, due to the Brexit factor.

Global Market Outlook

We were modestly bullish on equities going into the fourth quarter and remain equally positive on a 12-18 month timeline. The US election result makes us more confident on the US macro outlook as we believe Trump’s economic policies will continue to help equities and hurt bonds. However, reflecting on the dramatic events of 2016 only serves to suggest that 2017 as a whole MAY possibly be a very volatile one for us to once again navigate through.

Irish Market Outlook
We expect the Irish market to do well in the most likely economic scenarios. Continued healthy earnings growth and strong balance sheets with generally still OK valuations underpin this upside. The corporate sector is in good health, with plenty of cash and relatively little debt. We expect continued M&A activity and if shares become too cheap companies themselves may do more aggressive share buy-backs of their own stock.

Ireland remains very much a bottom up stock by stock story rather than some uniquely placed macro story. This hopefully is temporary but until such time as we have more clarity on Brexit and Trump’s policies, we don’t see global asset allocators putting allocations to Ireland as their top idea and not least because the market valuations aren’t overly compelling compared to global peers. That is not to say that we are in any way majorly concerned. Ireland’s growth story still is stronger than most and from a stock-market point of view has attractive valuations and earnings growth that is stronger than many.

For the portfolio we remain confident and do envisage some changes in the structure of the portfolio. We continue to favor stocks with strong cash flows, attractive balance sheets and strong and well managed businesses.