The New Ireland Fund

Portfolio Manager Commentary

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The New Ireland Fund, Inc. Portfolio Manager Commentary Quarter Ending April 30, 2018

Performance Review

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

  Period to April 30, 20181

Benchmark* Return

IRL NAV Return

Net NAV Return Relative to Benchmark





  Fiscal Year to date




  1 year




  3 years




  5 years




  Since inception




*Benchmark is the ISEQ ex Bank of Ireland up to July 31, 2011, the ISEQ from August 1, 2011 up to July 30, 2015, combined with MSCI All Ireland Capped Index (“MSCI Ireland”) from August 1, 2015.

Investment Overview:

Portfolio Review

Performance wise the portfolio had a negative return for the quarter in absolute terms with a small outperformance in relative performance terms. Top performer on the quarter was Smurfit Kappa group on the back of a takeover bid by International Paper (so far rejected by the Smurfit Kappa board). Other positive contributors included domestic economy consumer plays Dalata and Applegreen.

Underperforming stocks were typically defensive names such as food stocks Greencore (profit warning), Origin Enterprises (weather related concerns re winter cropping etc) and Paddy Power Betfair. Amryt Pharma a relatively illiquid name ticked down on the quarter while AIB Group was an underperformer on some concerns that the government may interfere with allowances on deferred tax assets etc (subsequently denied by the government) .

Major Fund stock capital moves (in USD terms)

  Quarter ending April 30, 2018       (MSCI Ireland -3.4%)

  Strongest portfolio returns

  Weakest portfolio returns

  Smurfit Kappa Group


  Amryt Pharma


  Dalata Hotel Group


  Greencore Group Plc


  UDG Healthcare PLC


  Paddy Power Betfair


  Applegreen PLC


  AIB Group


  Hostelworld Plc


  Origin Enterprises Plc


Irish Economic Review

GDP grew by 7.8% in 2017, while GNP (arguably a more accurate measure, essentially stripping out the impact of profit repatriations by multinational corporations) rose by 6.6%. The performance of both measures has been consistently strong, though extremely volatile.

However, as frequently mentioned in these reports, GDP and GNP statistics for Ireland have become somewhat misleading. GDP and GNP are no longer as useful as they once were in measuring the real change of activity in an economy, such as Ireland's, which is very open to international capital and trade flows of many kinds. Fortunately, there are a range of other indicators which can be used to give us a good sense of what really is happening in the economy, as below.

Retail Sales
Retail sales have been extremely volatile – and seemingly quite weak – over the last few months. It's difficult to determine the cause of this weakness. The most severe snowstorm in a generation hit Ireland in February and a further, less severe, snow storm again affected activity in mid-March. We will probably not have a good sense of the cause of this slowdown until we have data for at least another two months – which will indicate whether this slowdown was a temporary, or a sign of a more sustained deceleration of activity. Consumer confidence generally has been quite strong, helped by a very strong labor market and continued strength in residential real estate prices.

Manufacturing and Services Sectors
The pattern of business confidence is somewhat different to that seen in consumer confidence. Business confidence fell quite sharply in the run-up to, and aftermath of, the UK electorate's vote to leave the European Union. But, after a trough in July 2016 (immediately after the UK referendum result), it has recovered quite well and has now exceeded the level achieved in 2015, for example.

Labor Market
There continues to be a steady trend downwards in unemployment. The unemployment rate has also declined and stands at 5.9% (also March data), down from a peak of 16.0%. Ireland's unemployment rate is now substantially below the Eurozone average.

Credit Growth
Credit to households and non-financial corporations continued to contract, as repayments exceeded new lending. While growth remains strong, it is certainly not being financed by debt. The corporate sector continues to reduce its indebtedness, as it has continuously since 2009.

Government Finances
The government deficit is estimated to have been 0.3% of GDP in 2017, a 0.4% of GDP improvement relative to 2016. In the 2018 Budget, announced in October, the government forecast a very small deficit in 2018, of just 0.1% of GDP, and forecast a return to balance by 2020. The debt/GDP ratio is estimated to have peaked in 2013, at about 120%, and we estimate that it fell to about 68% at the end of 2017. All major credit rating agencies now rate Ireland in the “A” range.

The decision of the UK to leave the European Union may have significant ramifications for the Irish economy. Some small parts of the Irish economy may gain (financial services in particular) but the overall impact is likely to be negative. The scale of the negative impact is likely to 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 growing at a rate in excess of 5% per annum.

For 2018, the Central Bank of Ireland estimates GDP growth of 4.8% as capital spending continues to be strong but consumer spending comes under modest pressure. We believe that these forecasts are overcautious and expect stronger growth, in the region of 5.5%, although we recognize that risks remain elevated given the Brexit situation. Looking ahead to 2019, we expect GDP growth of about 4.5%, on the assumption that the Brexit process is reasonably well-managed by the UK authorities.

Global Market Outlook

Global equity investors entered 2018 seemingly happier than at any stage since the bull market began during the first quarter of 2009. Now, after a volatile and tricky first quarter, investors are generally more concerned again with many geopolitical concerns dominating the headlines and markets exhibiting more volatility than they have for many years.

From a fundamental perspective, the global economy is experiencing a strong synchronised growth led by the US and with Europe hot on its heels. Despite a tricky first quarter for equities and bonds, we remain constructive for coming quarters. Global equity valuations, after the recent setback, are closer to fair value and supported by strong and broadening bottom-up earnings growth. This will be THE driver of equity returns we believe, with central banks now firmly in the back seat. Global earnings (boosted by large US tax cuts) are growing at a healthy pace.

While generally positive in our outlook we do expect that the next coming quarters for equity markets will be more volatile. There are many reasons to expect such volatility to remain: 1) geopolitics, including trade wars, Brexit, North Korea etc.; 2) markets are more sensitive to higher inflation data and stronger economic data; 3) the abundant liquidity of recent years will diminish as central banks tighten policy and remove quantitative easing; and 4) it is reasonable to anticipate economic growth slowing for a quarter or two.

In summary, we have a positive outlook but expect more moderate returns than in recent years.

Asset class outlook: Equities

While we do expect equity volatility to be more of a feature we do not expect an imminent material correction in equity markets nor a bear market. We are in a new phase for the equity market cycle. The previous strong phase was best characterised by abundant liquidity and scarce economic growth, which led to the equity market itself rewarding a very narrow list of technology companies. The phase we are now in, is characterised as having growth that is expanding and liquidity that is shrinking. The consequences of this for us as investors is that we expect to see a more meaningful rotation from very expensive growth-type technology stocks to a broader more value-focused leadership.

Irish Market Outlook:

Given the healthy state of the Irish economy and robust outlook, we remain positive on the Irish equity market. Like many global equity markets Ireland has essentially stood still over recent months with rising earnings being offset by rising US interest rates and some currency headwinds, not least the approximately 12% weakness of the US dollar versus the euro over the past 12 months.

We continue to focus the portfolio with a strong bottom up stock picking emphasis, seeking superior growth at attractive valuations and not compromising on quality. We continue to build the portfolio in a balanced way with themes at present: 1) attractive dividend income; 2) world class growth stocks; 3) European recovery; 4) Irish domestic economy recovery; and 5) idiosyncratic bottom up picks.

The corporate sector is in good health, with plenty of cash on its balance sheet and relatively little debt. We have noticed a pickup in corporate activity be it M&A; stock buyback; and many companies increasing their dividends substantially.

For the portfolio, we remain confident and don’t at present envisage major changes to the portfolio. We remain cautious on the UK exposure and maintain a preferred exposure to both the European and US economies for external exposure. As always, we continue to favor stocks with strong cash flows, attractive balance sheets and strong and well managed businesses.