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Irish funds sector thrives in Q3

Friday, December 20 12:07:00

The Irish funds industry resumed strong growth in Q3 2013, with net asset values rising to E1.041 trillion from just over the E1 trillion mark in Q2, latest figures from the Central Bank show.

Strong investor inflows and asset price increases were equally important driving factors. Investment was strongest in debt securities, despite bond funds seeing net investor outflows in contrast to all other fund types.

Investment funds resident in Ireland (IFs) increased by E36.8 billion, or 3.7pc, to E1,014 billion by the end of Q3 2013, measured in terms of net asset value.

Net investor inflows and positive asset price revaluations were almost equal driving factors, at E18.8 billion and E18 billion respectively.

However, strong investor inflows to most fund types masked a significant outflow from bond funds, with investors most likely reacting to a significant correction in global debt security prices in Q2.

Asset price revaluations were concentrated in equities, with global equity markets increasing strongly in Q3, while bond prices stabilised but generally did not recover losses from the previous quarter. Recent developments resume a long-run trend of strong inflows in the industry in Ireland, as the chart below shows. The later quarter saw a resumption in growth in the value of the funds industry in Ireland, following a decline in Q2. This growth has now been positive for 17 out of the last 19 quarters.

Fund portfolio re-allocations heavily favoured debt securities in Q3, despite continued strength in global equity markets.

Some of the strongest investor inflows were into mixed and hedge funds, which have relatively unconstrained investment strategies, amounting to E7.2 billion and E4.9 billion respectively.

Both fund types saw a shift in portfolio allocation towards debt security assets, which rose by E4.8 billion and E3.7 billion respectively, while there were small net outflows from equity assets, once investments in the shares/units of other funds are excluded. Conversely, there were large investor redemptions from bond funds, of E9.6 billion, but these were principally met by reducing bank deposits by E5.2 billion, with holdings of debt securities declining by E4.9 billion.