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The benefits of active management were evident in 2024. Across the range of asset classes, Aviva funds performed strongly. John Deehan, Investment Sales Manager at Aviva Life & Pensions Ireland DAC, asked the managers of some of the funds that performed strongly, what drove this strong performance over the year, and the manager’s outlook for 2025.
High Yield Equity Q&A with Amber Gleeson
How did the High Yield Equity Fund perform in 2024?
The Aviva High Yield Equity Fund returned 21% in 2024, slightly behind the MSCI ACWI return of 25% (in euro terms). This slight underperformance makes sense with global equity market returns mainly driven by stocks where dividend-paying is scarce. The fund’s returns versus its peer group were stellar, and over the long term, we believe global equity income strategies can provide a resilient source of real equity returns for clients; however, where they have been most challenged is keeping pace with strongly rising markets. This is why we emphasise balanced portfolio construction through the three income buckets, with Income Growth being the main contributor to keeping some pace with the strong 2024 market
High Yield Equity Fund posts strong returns gross vs peer group to 01 January 20251
| 1 Year | 3 Years Ann | 5 Years Ann | 7 Years Ann | 10 Years Ann | |
|---|---|---|---|---|---|
| High Yield Equity Fund1 | 21.0% | 12.6% | 14.4% | 13.5% | 12.3% |
| Sector Average2 | 15.0% | 7.5% | 8.8% | 9.7% | 9.6% |
| Rank vs peers2 | 1/8 | 2/8 | 1/8 | 1/6 | 1/4 |
Warning: Past performance is not a reliable guide to future performance.
What were the key drivers of strong fund performance in 2024?
The top contributors to 2024 relative performance were semiconductor giants Broadcom and TSMC within the Income Growth bucket. The largest detractor was Nvidia, which the fund does not hold. Broadcom has seen structural demand growth in custom silicon chips from clients like Google, Microsoft, and Meta, and its acquisition of VMWare is expected to enhance software revenues. With a 15% dividend growth over the past five years and plans to resume share buybacks, returning cash to shareholders remains a priority. TSMC is pivotal to the global semiconductor industry and the evolving Gen AI ecosystem, with revenue and earnings exceeding analyst estimates due to rising demand for advanced AI chips. The major detractor was not owning Nvidia, whose share prices soared from Gen AI hype and strong results, although its low dividend yield (around 0.03%) makes it unsuitable for the High Yield Equity strategy.
What’s Aviva Investors outlook for the global equity income market in 2025?
There have been back-to-back years of c.20% global equity market returns and much market commentary around stretched valuations, particularly in US equities. Whilst this observation has merit, earnings could come through in 2025 to maintain valuations and potentially broaden out the equity rally. Of course, many unknowns could significantly affect the path of global equities next year – high on the list being what the new US administration implements in terms of policy. For the High Yield Equity Strategy, balanced portfolio construction across the three income buckets is important as each could play a role in 2025. Looking beyond 2025, several themes such as energy efficiency and grid infrastructure, data centres and generative AI and global communication networks could shape equity markets over many years.
Cantor Fitzgerald Multi-Asset Range Q&A with Philip Byrne
How did the Cantor Multi-Asset Funds perform in 2024?
The Cantor Fitzgerald Multi-Asset Funds continued their solid track record, being one of the strongest performing multi-asset ranges in the Irish market in 2024.
Cantor Fitzgerald Multi-Asset Funds post strong gross returns 20241
| 2024 Return | 5 Year Annualised Return | |
|---|---|---|
| Multi-Asset 30 | 12.3% | 5.9% |
| Multi-Asset 50 | 18.8% | 9.3% |
| Multi-Asset 70 | 25.6% | 12.5% |
Warning: Past performance is not a reliable guide to future performance.
What were the drivers of this strong fund performance?
Our flexible, agnostic approach really paid off in 2024, as the funds outperformed the benchmark and peer group. It was especially reassuring for the CFAM team to see that the overall outperformance within our funds came from such diversified sources of return, as the full benefits of our multi-asset active approach were delivered for our clients.
We began 2024 with the funds invested at the upper end of their growth asset allocation range and remained so for most of H1. The MA 70 Fund delivered its best H1 return since 1993. All three multi assets funds delivered strong absolute and relative performance markets trended higher for the first half of the year, led by stocks and sectors exposed to our key themes of Digitalisation and Decarbonisation.
As we approached the summer, we reduced exposure to risk assets below the mid-point of our asset allocation range and then to the bottom end as valuations and market sentiment exhibited worrying signs of frothiness. With market breadth so particularly weak, we feared Geopolitics, especially the US election, would come to the fore and delay the FED rate-cutting cycle. This manifested itself in the form of extreme cross-asset volatility in the mid to late summer. The Multi-Asset Funds navigated this period successfully when markets fell intra-month in August by c. 10%. Our decision to rotate our risk assets away from cyclicals, which had performed so well for us in the early part of the year, into higher quality defensive equities protected clients. In addition, our Alternative Fund was a positive contributor, complementing the overall Multi-Asset portfolio during bouts of volatility, given its ability to use index protection (insurance against market falls).
As we entered Q4, we added to risk within the portfolio following two unexpected tailwinds from the final weeks of Q3 in the form of the US Federal Reserve’s rate cut of 0.5% and the PBOC in China’s significant stimulus plan. The decision to raise cash levels in the summer proved fruitful as the drawdowns in equity markets seen over the late summer months allowed us to add back exposure in some favoured technology names, which in some cases had retraced 30% plus.
After the US election market strength, we derisked the portfolio again and went back to the lower end of our growth asset allocation ranges, at which we remain. All three funds continued to outperform until the end of the year.
The outstanding returns that we achieved for our clients in 2024 are the result of a combination of prudent asset allocation, summarised above, and active rotation of the underlying equity portfolio. The key contributors to our significant outperformance in 2024 were US Semiconductors, UK Financials, Green Industrials, US Banks, US REITs, Cloud Hyperscalers, US Med Tech, and UK Housebuilders.
What’s your outlook for 2025 and the Funds’ resultant positioning?
Although the bottom-up micro-outlook for specific stocks and sectors looks as strong as ever, fuelled by generational trends such as Digitalisation, the geo-political, macro, and, most of all, yield backdrop has darkened somewhat in the immediate term. We have decided to use the post-election strength to de-risk the portfolio. Currently, we are sitting back at the lower end of our asset allocation range. Regions Like Europe and China will be at the crosshairs of trade frictions we have reduced exposure to substantially. Against a tricky macro and political backdrop, investing in leading companies will matter more than ever. We have switched to some large-cap US financials that will see upgrades and multiple rerating from this higher rate, lower regulation world. We have also added to our LNG exposure. This industry sits at the centre of the Trump administration’s positive policies, and that is coming more to the fore for Europe’s energy security. Pragmatism slowly takes over in Brussels. We added some renewable names on weakness. Within the defensive assets, we have chosen the safety of cash in a world with a flat and rising yield curve.
Aviva Investors Multi-Asset Range with Peter Smith
How did the Aviva’s Multi-Asset Range perform in 20241?
Aviva Investors’ Multi-Asset Funds delivered solid absolute and relative performance in 2024.
Gross fund performance to 01 January 20251
| 2024 | |
|---|---|
| Aviva Fixed ESG 20 | 6.4% |
| Aviva Fixed ESG 40 | 11.4% |
| Aviva Fixed ESG 60 | 16.5% |
| Aviva Fixed ESG 80 | 21.7% |
| Aviva Multi Asset ESG Passive Plus 3 | 7.9% |
| Aviva Multi Asset ESG Passive Plus 4 | 15.6% |
| Aviva Multi Asset ESG Passive Plus 5 | 22.3% |
| Aviva Multi-Asset ESG Active 3 | 7.6% |
| Aviva Multi-Asset ESG Active 4 | 15.3% |
| Aviva Multi-Asset ESG Active 5 | 21.4% |
Warning: Past performance is not a reliable guide to future performance.
What drove the strong performance for Passive Plus and Fixed Allocation Funds?
The Aviva Fixed ESG funds are index-tracking funds, and the Aviva Multi-Asset ESG Passive Plus fund range uses a long-term strategic asset allocation. Therefore, the performance of these funds is driven by the performance of the underlying markets.
Global equities performed incredibly well in 2024, returning 25% in euro terms. This was despite several bouts of volatility, driven by uncertainty surrounding the potential for political upheaval, fears of a US recession, and sticky inflation. Markets were supported by global growth, which generally proved resilient, alongside continued rate cuts by central banks. In particular, the S&P 500 was a stand-out performer, posting a return of over 33% in euro terms. This was primarily driven by the Magnificent 7 stocks, which delivered an exceptional 67% return over the year. Trump’s election victory also provided an additional boost to the index in the fourth quarter. European equities posted a smaller gain over the year due to continued weakness in macro data and uncertainty caused by political shocks in France and Germany.
Most fixed-income assets delivered a positive performance in 2024, though this was less pronounced than growth assets. Rate cuts took longer than initially expected due to upside inflation surprises earlier in the year. In January, markets priced in approximately 6 rate cuts by the Fed, while they only delivered three. This saw global bond yields trend higher prior to a dovish pivot by developed central banks in H2 as inflation showed signs of easing.
How about the Active Multi-Asset Funds?
The Multi-Asset ESG Active funds have a strategic asset allocation, which drives performance over the long term. Additionally, the funds use tactical asset allocation to take advantage of shorter-term opportunities in the market where the fund manager believes they can add value. Overall, the active tactical asset allocation added to performance in 2024. The overweight equity position has been additive in 2024, especially the exposure to US equities, which we have increased over the year. US tech stocks benefitted from continued revenue growth driven by the AI boom, optimism surrounding the US’ soft landing’ and, in the final quarter, the Republican Party’s clean sweep. The overweight exposure to European and Japanese equities was closed in the latter half of the year. The former was closed due to weak macro prospects, whilst we decided to take profit on the Japanese equities position following opportunistic trading during August’s market volatility. We also closed the US / EM equity relative value trade after the PBOC (the Chinese Central Bank) announced a substantial stimulus package in September. The funds maintained an overall neutral position within fixed income, with regional variations. The tactical positions in fixed income detracted from performance during the year, largely due to the overweight position in Gilts. Despite rate cuts by the Bank of England, yields were impacted by concerns about higher spending following the UK Budget announcement in October. The short position in Japanese government bonds helped to offset some of this.
What’s Aviva Investors outlook for markets in 2025?
The year ahead will likely be marked by significant policy uncertainty, leading to various possible outcomes for the global economy. However, this does not imply that the world is heading towards a recession and will be a poor environment for risky assets. Instead, the policy uncertainty suggests a wide distribution of possible outcomes, both positive and negative. Elections, as the saying goes, have consequences. The return of President Trump to the White House is expected to bring a host of important changes across the policy spectrum, from trade to tax and spending, regulation, immigration, and foreign policy. Any one of these would be significant, so the combination and sequencing of all of them will no doubt prove challenging for markets to digest. The positive reaction of US equities suggests markets view these policy changes as unlikely to derail the US economy. We broadly agree although the range of possible outcomes is wide. This is even more pertinent outside the US, where policymakers will respond via trade, fiscal, and monetary policies. Europe is facing the dual challenge of a more difficult trading relationship with the US, alongside softening Chinese growth (and potential pressure from the US to reduce ties with China). As with growth, the range of possible outcomes for inflation next year is also wide, especially in the US, where we would expect any tariffs to be passed through to consumer prices. Hence, we think central banks will be cautious in reacting strongly without a clear signal of a change in growth or inflation trends.
1.Source: Longboat Analytics to 01 January 2025 based on calendar year returns. The returns quoted include the reinvestment of net income and are net of trading costs, but before deduction of annual management charges and other insurance contract charges and as such do not represent the returns on insurance contracts linked to these funds. Details of all charges for a particular product are available on request.
2.Source: Longboat Analytics to 01 January 2025. Performance is quoted gross of fees. Equivalent funds in the peer group are Cantor Fitzgerald Global Equity Income, New Ireland IQEQ (previously Davy) High Yield Gross, Aviva High Yield Equity Fund Series C, New Ireland Goodbody Dividend Income 6 Net, Standard Life Diversified Income, Irish Life IL/Setanta Equity Dividend, New Ireland High Yield Equity Fund Gross, and Zurich Life Dividend Growth G.
| Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment may go down as well as up. Warning: The income you earn from this investment may go down as well as up. Warning: If you invest in these funds you may lose some or all of the money you invest. Warning: These funds may be affected by changes in currency exchange rates. Warning: If you invest in a pension, you will not have access to your money until you retire. |
