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Negative average returns on euro equities

FUNDS FOCUS - EURO EQUITIES: Best performer – five years: Eagle Star Euro zone Equity G: +20

Fri Feb 11 2011 - 00:00

FUNDS FOCUS - EURO EQUITIES: Best performer – five years:Eagle Star Euro zone Equity G: +20.854% Worst performer – five years: Ark Life PEP Euro zone G: -14.16%

GIVEN THE dramatic collapse of equity values since the onset of the financial crisis, it’s not surprising that investments in euro zone equities have yielded a negative return on average over the last five years. According to MoneyMate, Irish gross domestic funds invested in equities of euro zone countries delivered an average return of -4.3 per cent in the five years to February 8th, 2011.

While the vast majority of funds in the euro zone equity category covered by MoneyMate have shown negative returns over the last five years, Eagle Star, Standard Life and Bank of Ireland Asset Management’s euro zone equity funds have posted gains.

Eagle Star’s euro zone equity fund’s return of more than 20 per cent during the period is almost 18 per cent higher than the second-best performer, proving that exposure to euro zone equity markets can pay dividends.

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Anthony Conroy, associate director of global equities at Zurich Life, said the fund took a number of positions which ensured its strong performance.

It was overweight in car stocks such as BMW, Volkswagen and Daimler, which benefited from rising Asian consumption levels during the period. It also kept an eye on mid-cap stocks which tended to be relatively cheap and under-researched in comparison to large-cap companies such as oil companies, increasing their holding accordingly.

The fund had minimal exposure to Irish equities. On average, over the five years in question, the holding in Irish equities remained below 2 per cent. While there was virtually no exposure to Irish equities in the last three years, the fund also pulled out of Irish equities up to 18 months before the financial crisis took hold.

That the fund was underweight in European banks paid off in light of the their underperformance.

At the other end of the spectrum, Ark Life PEP Euro zone G delivered a return of just below -14 per cent. AIB, which runs the fund, said it was one of a number created in the mid-1990s to encourage investment in Irish companies, hence was mandated to hold a higher portion of Irish equities.

“The performance of the fund has therefore been influenced by the overall performance of the Irish market, particularly the decline in values over the past two years,” the spokesman said.

SUZANNE LYNCH