deVere Group - International Investment Strategy

International Investment Strategy

deVere Investment Strategy aims to provide clients with a comprehensive picture of the global economy and regular updates on current stock market and fixed income trends, in order to assist investors in making informed investment decisions. It is headed by Tom Elliott, deVere's International Investment Strategist, who produces regular videos and blogs on a wide range of topical investment issues, and regularly speaks at seminars for clients at deVere offices around the world.

The core-satellite approach to investing has several advantages over buying a multitude of separate, high risk investments. The bulk of the portfolio is handed over to a professional multi asset investor, who is qualified to match expected returns with expected levels of risk. The satellite investments allow the client to try to 'beat' the market with higher risk investments, but total portfolio risk is reduced through setting a limit on the size of the satellite allocation relative to the core.

Note: The information contained in this chart is for general guidance on matters of interest only. The deVere Group disclaims any responsibility for content errors, omissions, or infringing material and disclaims any responsibility associated with relying on the information provided herein.

Tom Elliott

International Investment Strategist

Tom Elliott is the deVere Group's International Strategist. His role is to help the Group's clients to better understand the economic and political influences that drive capital markets, which in turn drive investor returns.

Tom, formerly an Executive Director at JP Morgan Asset Management, has 25 years experience in the financial sector.

He is currently a visiting lecturer in the department of political economy at King’s College, London.

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Tom Elliott
Recent Broadcasts
Video
May 18, 2017

Should we be concerned about low volatility in capital markets?
Tom Elliott

Tom Elliott explains why fundamentals are still good for stocks, and why any market correction over the coming months is likely to be temporary.

Older posts

Article 50 and the UK Stock Market
The forthcoming Brexit negotiations will focus on the exit terms and the status of nationals working abroad. In all likelihood a new replacement U.K / E.U trade agreement will not be in place by end of March 2019, leaving the U.K to conduct its trade with the E.U under WTO tariffs. As this becomes apparent, shares in domestic-focused companies may suffer relative to those of FTSE100 multinationals.
March 24, 2017

Outlook for Capital Markets in 2017
Tom Elliott identifies Donald Trump's fiscal stimulus of the U.S economy as potentially the single most important economic theme in 2017, with implications for global capital markets.
January 04, 2017

Wall Street under President Trump - a boom and bust scenario?
Tom Elliott asks if lower taxes and increased infrastructure, together with curbs on immigration and tariffs on imports, might cause a short boom in domestic demand and corporate earnings. As inflation gathers pace and interest rates rise, markets may then panic.
December 07, 2016

US Credit
The U.S non-financial corporate sector currently holds $1.84 trillion of cash against $6.6 trillion of debt. Some believe that debt levels have become excessive, and wonder if this could be where the next financial crisis lurks
October 24, 2016

Wither Sterling?
The U.K government's option to chose a 'hard' Brexit will almost certainly lead to the U.K leaving the single market and -if it wants to strike its own trade deals with Australia etc. - the E.U's free trade area. Investors are nervous that the economic disruption will slow growth, and lead to an unwillingness of foreigners to fund the $162bn current account deficit. Goldman Sacs forecast a further 5% fall on trade weighted basis for sterling over the next three months.
October 07, 2016

Video Archive >>

Blog
May 22, 2017

Investment Outlook
Tom Elliott

Near-term market sentiment: Unnecessarily nervous. A week ago market commentators were complaining that the VIX index (of implied volatility on the S&P500) was at a 23-year low of 9.77. Surely, they said, this implied investor complacency? Aside from making the error that the VIX needs to be mean-reverting (it may tend to, but that’s different), those commentators should now be relieved that the VIX currently stands at over 15. No one can still accuse investors of still being complacent. But prepare for the VIX to fall back to low levels: the two triggers behind the rise in the VIX and mid-week falls on global stock markets, being Trump’s links with Russia and (to a lesser extent) corruption allegations made against President Temer of Brazil, do not look substantial enough to trigger a global stock market correction. To put it bluntly, would global capitalism weep if Trump was impeached or resigned from office, and why would investors flee global risk assets if such a thing happened?

 

Broad economic and political assumptions for rest of this year: World GDP growth continues to accelerate, from 2.9% last year to a forecast of 3.5% in 2017 (IMF estimate), which will feed through into solid corporate earnings growth. Last week Japan reported first quarter GDP growth of 2.2% (annualised rate), making it the longest single stretch of growth for more than a decade. The euro zone grew at 2.0% over the same period. Certainly the U.K grew at a more modest 1.2%, as inflation eats into real wages, and the U.S grew at 0.7%. But while the U.K may be about to enter a period of weaker growth as a result of Brexit, the U.S is now on target to record 2.2% GDP growth this year thanks to much stronger economic activity this spring. China -if the data is to be believed- hums along at just over 6.5% growth. Another two rate hikes from the Fed this year remain likely, but global inflation pressures remain mute and central bank policy looks unlikely to spoil the generally fair environment for equities

 

In the U.S, we may see Trump getting some corporate and income tax reductions and business de-regulation through Congress this year, but little else relevant to investors.

A large increase in the Conservative Party’s majority in Parliament after the 8th June election should allow the U.K government to negotiate a smooth transitional arrangement for a softer Brexit than previously expected, should it wish to go for that option. However, investors may be confused by Prime Minister Theresa May, whose election policies increasingly resemble a mix of the 2015 election manifestos of the Labour Party and UKIP. Sterling to remain sensitive to Bexit negotiations.

Within the E.U, it is the Italian election (to be held no later than next spring) that appears most likely to deliver the next populist government after those of Hungary and Poland. In France, Macron will struggle to push through reform policies given the lack of a parliamentary majority for his party, but his support for the E.U will help the organisation deal with Brexit, and make progress with a banking union which many see as essential in order to break the link between euro zone bank and sovereign debt crisis. Angela Merkel to remain Chancellor in the autumn German elections.

Dollar to be flat, metal prices remain highly sensitive to China growth data. Oil trades $50-$55 a barrel, with Russia and Saudi Arabia agreeing to push for an extension of current production caps by OPEC and key non-OPEC producers at their next meeting on 25 May.

Taking the above assumptions into account: Remain fully diversified, with perhaps a bias to the Europe ex UK region, funded through an underweight position the U.S. European political risk is likely to continue to fade and growth to accelerate, while in Japan Abe will continue with his ‘third arrow’ of structural reform despite recent personal political setbacks. Dividend yields in the euro zone, the U.K and Japan remain comfortably higher than those of comparable government 10 yr bonds, but in the U.S the S&P500 yield is less than that of the 10yr Treasury - which suggests stretched valuations. The prospect of a softer Brexit, should the post-election U.K government choose to pursue it, is good for sterling and so negative for the FTSE100 index due to its international exposure. Neutral emerging markets: corporates appear vulnerable on account of the burden of dollar-denominated debt taken on over the last decade, and an over-reliance on the Chinese and U.S economies with domestic demand growth having lagged export growth.

If we are to worry about a global stock market correction, perhaps China trumps Trump. There is a risk that, in curbing credit growth too rapidly in order to reduce borrowing, Beijing tightens monetary policy more than the economy can stand and induces a period of much slower growth. A potentially sharp devaluation could be triggered, that in turn leads to fear of imported deflation in the West. Remember July and August of 2015?

If U.S and European wage inflation remains modest, further gains may be had in fixed income but caution is advised. A bias towards short duration and limited exposure to high yield -which appears expensive- perhaps yielding the best results.

A balanced fund for the long term. The chart below shows a typical long-term balanced portfolio based around 60% global equities and 40% global bonds. Financial history shows this combination to offer good returns relative to risk (ie, volatility). Investors should try to be as diversified as possible, perhaps using the 60/40 model as their guide. Multi-asset funds based on this principle are available, often with different ratios of bonds and equities depending on the level of risk suitable for an investor. Note that the chart shows neutral weightings for the long-term investor, it does not incorporate the near-term weighting suggestions of the previous paragraph.

Older posts

Investment Outlook
May 07, 2017

Investment Outlook
A fortnightly look at global financial markets
April 10, 2017

Investment Outlook
Why aren’t more global investors buying Japanese equities? Attractive valuations, rising corporate profits, and an improved global and domestic economic outlook, all favour Japanese equities. Why, then are global investors shunning the asset class? Perhaps they should look again.
March 30, 2017

Investment Outlook
This week - The Fed will raise rates, but what if they don’t? English nationalism and Article 50 negotiations, weaker correlations favour active fund managers
March 13, 2017

Investment Outlook
A fortnightly review of global capital markets
February 05, 2017

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