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Can we create an evidence-based investment approach for taxable investors in Ireland?

Can we create an evidence-based investment approach for taxable investors in Ireland?

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We think we can

We have been advocates of an evidence-based investment approach for more than a decade in Ireland.

However, the Budget in 2013 raised the rate of Exit Tax from the previous (33/36%) regime to the current stubbornly high level of 41%. We’ve seen this ever since. We acted quickly to sell down our client’s holdings in “offshore” UCITS funds before the end of the year in order to lock in gains at the ruling rate and developed our Irish Tax optimised solutions due to the increase in the  Exit Tax rate.

So now, we thought it would be appropriate to look back and assess if this decision had indeed been the right one for our clients.

At the time of the Budget in 2013 our portfolios were modelled using a mix of Vanguard, Blackrock and Dimensional Funds intended to provide a low-cost and evidence-based investment solution for Irish Investors.

So, we have used the Dimensional World Equity Fund Euro Account as our selected benchmark for this analysis.

‘Factor’ allocations

To mirror the evidence-based approach we want our portfolio to have an intentional bias to both smaller companies and value stocks.

Source: Morningstar

Sector & Geographic Exposure

We also want to be globally diversified with an allocation which aims to approximately replicate the relative market weights of different countries.

Source: Morningstar

Again, we can see that the portfolio broadly matches the benchmark in terms of sector and country exposure so structurally these are broadly similar portfolios although our portfolio is clearly globally diversified it is more concentrated than the benchmark with 1,312 Stocks.

Let’s see how that plays out in terms of comparative performance.

Source: Morningstar

 

We can see that the portfolio has consistently performed better than the benchmark.

Risk Adjusted Returns

We can also see that, on a risk adjusted basis, the portfolio has converted each unit of investment risk into a unit of return more efficiently.

Source: Morningstar

 

Charges

Investment Ongoing Charge
Global Wealth Portfolio 0.63%
Dimensional World Equity 0.40%

We can see that the Everlake Portfolio is not materially more expensive than the benchmark fund.

Tax

Investment Tax treatment for personal accounts
Global Wealth Portfolio Income – Income tax at marginal rates, plus USC and PRSI as appropriate

Gains – Capital Gains Tax (33% Tax Year 2020)

Dimensional World Equity Income and Gains subject to Exit Tax (41% tax year 2020)

 

Clearly for some investors especially those with low taxable income and or capital gains tax loses, the Everlake Portfolio may be more suitable.

This article is for information and educational purposes. The Central Bank of Ireland does not regulate tax advice

If you would like more information, please Schedule a Call

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