Ireland's case built on a lot more than blarney

The Celtic tiger is attracting investors, writes Sam Dunn
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The Independent Online

To some, it's a rugged holiday destination of staggering beauty. To others, it's a party destination for raucous stag dos. But for investors, Ireland means growth and soaring returns.

To some, it's a rugged holiday destination of staggering beauty. To others, it's a party destination for raucous stag dos. But for investors, Ireland means growth and soaring returns.

The Irish economy was dubbed the "Celtic tiger"' in the 1990s as it grew at 8 per cent a year - three times the EU average.

This was down to a combination of overseas investment, regeneration cash from the EU, generous business taxes, low interest rates in the eurozone and "light touch"' industry regulation.

Money, particularly from the US, flowed into new businesses as Ireland rode the dot-com wave. This alliance of entre- preneurship and natural beauty gave the country a new identity as a "hi-tech tourist magnet".

It couldn't last. Inflation surged to push prices up and growth dipped as a result of the global slowdown. Now, returns aren't as impressive as in those heady days, but Ireland still has plenty to offer investors.

You may even find you already have money invested in Ireland through your pension or an individual savings account (ISA), since many European equity funds plough savers' cash into Irish companies.

David Astor, who manages the Hiscox European Financial fund, is heavily invested in the country. In geographical terms, the fund has a bigger exposure only in the UK. His biggest shareholding is in the Anglo Irish bank. "Ireland continues to be one of Europe's best-performing economies as it benefits from low eurozone rates," he says. "It is a high-growth economy for bank stocks such as Allied Irish and Bank of Ireland; they are some of the cheapest in Europe."

Caroline Vincent, a fund manager at Cavendish Asset Management, has been investing in Irish stocks via the Worldwide fund. Her choices include Kerry, Ireland's biggest food maker, and Heiton, a steel and builders' merchant.

"Ireland's gross domestic product growth really stands out compared to others in continental Europe," she says. "And this growth isn't temporary; it's been running for a while now and will [continue]."

She points to US businesses keen to use the country. "Ireland's economy is being chosen over that of the UK - for example, Intel will build a huge plant there. And there are low corporation taxes that are very attractive to outside investors.

"And of course, Ireland has the euro, which is handy for US com- panies keen to trade in Europe."

Despite such opportunities for explosive growth, you will struggle to find a fund that invests exclusively in Ireland; most European funds take in a selection of countries. The Gartmore Irish Growth investment trust comes closest but includes companies from North- ern Ireland too. It is involved in construction companies, information technology suppliers and consumer goods.

Although there is no rival sector fund with which to compare its performance, the investment trust has generated strong returns over the past 12 months. If you had invested £1,000 a year ago, it would be worth £1,638 now.

"It's difficult to get direct exposure to the country since, apart from Gartmore, there's very little out there," says Patrick Connolly of independent financial adviser (IFA) John Scott and Partners. A number of European funds have now boosted their exposure, he adds, although "Ireland still only has a small weighting within them".

However, he continues, this may not be a bad thing as staking your money on just one country can be risky. "I would not recommend people invest in a single country apart from the UK, US or perhaps Japan." Mr Connolly recommends the Gart- more European Focus fund.

Ben Yearsley of IFA Har-greaves Lansdown believes that, as an investment, Ireland is much lower risk than, say, Russia. "Although a small country, it is part of the much bigger EU," he says, suggesting the HSBC European Growth Fund

A managed investment fund is one of the most cost-effective ways of putting money into Ireland. It is possible to buy individual stocks on the Irish Stock Exchange via a stockbroker, but this can be costly, once commission, custodian charges and stamp duty are taken into account.

The other point to consider is that you will only be able to invest in a handful of companies at most, which will increase your risk considerably.

Before you take the plunge and invest in Ireland, Nick Greenwood, fund manager at investment house Iimia, sounds a note of caution. Unlike in the UK, where interest rates are set by the Bank of England, the cost of borrowing in Ireland is controlled by the European Central Bank. This, he says, could cause problems in the future. "The economy is booming; with this one-size-fits-all interest rate [for the EU]. I think you're going to see an asset bubble in Ireland."

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