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

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


We think we can.

Introduction


For more than a decade in Ireland we have been advocates of an Evidence-based investment approach as set out in our Investment Philosophy below.




However, due to the Budget in 2013, which raised the rate of Exit Tax from the previous (33/36%) regime to the current stubbornly high level of 41% which we have seen ever since. We acted quickly to sell down our client's holdings in "offfshore" 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.

We discussed these challenges in the Sunday Times in December 2013

See here

So now, nearly 7 years later, 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 modeled 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 Acc 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 and 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 Global Wealth 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 Global Wealth Portfolio may be more suitable.

Full details are in our tax guide below


For information and educational purposes. The Central Bank of Ireland does not regulate tax advice

If you would like more information, please contact us with the form below