Portfolio Manager Commentary

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The New Ireland Fund, Inc. Portfolio Manager Commentary Quarter Ending January 31, 2018

Performance Review

The New Ireland Fund Inc.'s (the "Fund" or "IRL") NAV per share returns are summarized below.

  Period to January 31, 20181

Benchmark* Return

IRL NAV Return

Net NAV Return Relative to Benchmark





  Fiscal Year to date




  1 year




  3 years




  5 years




  Since inception




*The Benchmark is the MSCI All Ireland Capped Index. Prior to August 1,2015, the Benchmark was the Irish Stock Exchange Index. Prior to July 31, 2011, the Benchmark was the Irish Stock Exchange Index ex Bank of Ireland.

1 All returns are in US dollars unless state otherwise

Investment Overview:

Portfolio Review

Within the portfolio the banks had a better quarter with Bank of Ireland and AIB strong, BOI finally made up some lost ground versus AIB. We also note that other cyclical names such as Hostelworld and Smurfit Kappa performed well during the quarter.

Underperforming stocks were typically defensive names such as food stocks Glanbia, Greencore and Origin Enterprises. Kerry Group was also a relative underperformer. Healthcare names such as Malin and UDG Healthcare also treaded water generally.

Major Fund stock capital moves (in USD terms)

  Quarter ending January 31, 2018       (MSCI Ireland +5.8%)

  Strongest portfolio returns

  Weakest portfolio returns

  BOI Group plc


  Glanbia Plc


  Hostelworld Plc


  Malin Corp


  Amryt Pharma


  UDG Healthcare


  AIB Group


  IPL Plastics


  Smurfit Kappa Group


  Origin Enterprises


Irish Economic Review

GDP grew by 10.4% over the year to end September (last available data), while GNP (arguably a more accurate measure, essentially stripping out the impact of profit repatriations by multinational corporations) rose by 11.0%. The performance of both measures has been consistently strong, though extremely volatile, for some time, as the chart shows.

Retail Sales
Retail sales are now growing at more than 7%. This shows that consumers, boosted by strong jobs growth and low inflation, are willing to spend. Consumer confidence has risen very sharply over the last few months and in January was at its highest level since 2006.

Manufacturing and Services Sectors
Business confidence fell quite sharply in the immediate run-up to, and the 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.

Labor Market
The number of unemployed has fallen from a peak of 449,000 in August of 2011 to 238,400 in January 2018. The unemployment rate also declined to 6.1% (January data), down from a peak of 16.0%. Ireland’s unemployment rate is substantially below the Eurozone average.

Credit Growth
Credit to households and non-financial corporations continued to contract, as repayments exceeded new lending. The overall pattern is that while growth remains 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 as measured by the “General Government Balance”, a standardized EU measure, 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 again 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 70% at the end of 2017 - though this overstates the real level of indebtedness as it excludes large cash balances.

All major credit rating agencies now rate Ireland in the “A” range.

The decision of the UK electorate to vote 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. In our opinion the scale of the negative impact is such that it is likely to be noticeable, but not dramatic.

For 2018, the Central Bank of Ireland estimates GDP growth of 4.4% as capital spending continues to be strong but consumer spending comes under modest pressure from the uncertainty surrounding Brexit. We believe that these forecasts are somewhat 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 growth of about 4.5% (as measured by GDP), on the assumption that the Brexit process is reasonably well-managed by the UK authorities.

Global Market Outlook

The global equity bull market will celebrate 9 years since the lows of Q1, 2009 with investors having entered 2018 more bullish than at any stage during the past 10 years. We are generally happier when the consensus is more worried than happy which is not the case today!

While we remain constructive for coming quarters at least, we believe 2018 will be a much trickier year to navigate global equity markets than 2017 and are conscious that running with bulls can lead to eventually being trampled upon!

The fundamental factors supporting a positive outlook include many stock markets at cycle highs, a very robust global economy forecast for 2018, with even stronger forecasts for earnings growth and seemingly lessened political concerns. Thus, we have the goldilocks combination of strong growth combined with benign inflation. Central banks have been the supporting act for many years by generally maintaining low interest rates which when combined with quantitative easing are helping to keep this party going. The US Fed are currently reversing this, so less market friendly but other central banks such as the ECB and BOJ remain supportive of low rates.

There are, however plausible scenarios that can upset this and cause market wobbles:

Irish Market Outlook

We remain constructive given the positive economic growth and earnings outlook but remain vigilant to political clouds from Brexit and to a lesser extent, US policy. Ireland and Europe generally are behind the US, recovery wise and still have plenty of economic slack and recovery ahead of them. Likewise, Irish earnings have not fully recovered to new highs and we believe positive earnings growth combined with attractive valuations allow further gains to be made.

We continue to focus on the portfolio with strong bottom up stock picking, always seeking superior growth at attractive valuations and not compromising on quality. Over recent quarters we have broadened the holdings into some Euroland companies (Saint Gobain and Veolia) as well as taking part in new recent IPOs (Greencoat Renewables, Glenveagh), placings (Total Produce) and stocks that have a meaningful Irish presence (Covanta).

The corporate sector is in good health, with plenty of cash on its balance sheet and relatively little debt. We expect continued M&A activity and buybacks. IPO activity, while limited, is still evident and we remain of the view that we will see more opportunities.

For the portfolio, we remain confident and do not at present envisage major changes to the portfolio structure. We remain cautious on the UK exposure and prefer exposure to both the European and US economies for external exposure. We continue to favor stocks with strong cash flows, attractive balance sheets and strong and well managed businesses.