deVere Group - International Investment Strategy

About Tom Elliott

Tom Elliott is an independent investment strategist, and has been a consultant to the deVere Group since 2013. He uses his 25 years experience in the financial sector to help explain and discuss, with the Group's clients, the economic and political influences that drive capital markets.

Tom is a fan of the core/ satellite approach to investing, whereby the bulk of a portfolio is invested in good quality core multi-asset investments that are held for the long-term, while a small portion of the portfolio is used to take short, tactical positions in the markets.

Tom worked as a strategist on the global multi-asset desk at JP Morgan Asset Management. From 2006 until leaving in 2013 he was head of the UK Guide to the Markets team, which focused on high-level investor communication. He left JP Morgan Asset Management as an Executive Director, after 18 years with the firm.

Tom has an MSc in Economic History from the London School of Economics. He has been a visiting lecturer in the department of political economy at King’s College, London since 2015.

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
Recent Broadcasts
April 24, 2020

Investment Outlook
Tom Elliott

Market sentiment: Consolidating. Having recovered from their crisis lows of a month ago, global stock markets are treading water as investors wait for more clarity on corporate earnings forecasts. The strength of corporate earnings over the coming 12 months will depend on how, and when, countries’ lockdowns end, and whether the substantial fiscal and monetary policy responses from governments and central banks prove sufficient to enable a quick return to normal economic life. In view of these policy responses (which now include the previously unthinkable purchase of junk bonds by the Fed and the ECB), it seems reasonable to expect a rebound in both growth and corporate earnings from the third quarter, as lockdowns are lifted. This would constitute a U-shape scenario in the alphabet soup of possible scenarios being discussed by economists.

Since stocks are priced on their future earnings potential, not just on one year’s earnings, current share prices appear reasonable if a U-shape scenario does unfold. And if an unwinding of lockdowns over the summer can be done without provoking a second wave of illness, we can expect a further rally for risk assets. Worse-case scenarios (such as the L-shape) will be steadily discarded, market volatility will decrease, and investors become more confident.

Tech and healthcare. The outperformance of tech and healthcare stocks continues. Previous bear markets that often saw growth stocks underperform the main market, as investors shied away from riskier parts of the stock market. Today anything that offers its services primarily through the internet, and is not reliant on advertising, is considered a relatively safe stock in the near term. Longer-term, it appears likely that many habits learnt by us -as consumers and workers- during lockdowns will stick, to the benefit of the tech sector. Zoom’s video calling and Microsoft’s Teams are good example. I rarely used them before, now I use them constantly. 

In healthcare, some companies are benefiting from demand for their products as the virus claims more victims and hospitals fill up. But the real story is the longer-term impact of the crisis on the industry, which can expect to be given greater government protection amid claims it is a strategic asset. More localised production of key items and pharmaceutical ingredients may push up production costs for the industry, but in return for on-shoring their supply chain companies may be given protection from overseas competition, and be allowed to raise prices to more than compensate. 

Near term, it’s all about testing. Long term, we need a vaccine against COVID-19 in order to be certain that it is conquered. The earliest estimate -if current trials are successful- is for the production of a vaccine to begin next summer. But lockdowns can be ended with some confidence if testing for antibodies is expanded. Individuals can go to work in the knowledge they have had exposure, and acquired immunity, and are not currently contagious. National levels can be established, to determine if/when herd immunity has been achieved. The shape of the global economy in 2020, and ultimately the outlook for corporate earnings this year, may be determined by the availability of testing kits. 

Longer-term, should we fear inflation? The jury is out -and will remain so until lockdowns end- as to whether the global economy will see a wave of inflation, deflation, or perhaps neither. After an initial inflationary boom, caused by pent-up demand and supply bottlenecks, ‘neither’ looks a surprisingly probable option.

At first glance, the inflation-worriers have a lot of good points. Governments are borrowing money at spectacular speed, in the past, this has fuelled boom economies and inflation. Central banks are promising to buy the government debt to ensure demand and to keep borrowing costs stay artificially low. The ECB will inject EUR 750bn of cash into the eurozone economy, by buying bonds, through its Pandemic Emergency Purchase Program (PEPP). The Fed is promising literally unlimited bond purchases. The Bank of England has broken a central bank taboo and will start buying bonds directly from the government. This so-called ‘monetary financing’ of government spending has been seen previously in the Weimar Republic, Zimbabwe, and Venezuela. 

Surely, the inflation worriers argue, this money has to go somewhere and will raise prices? The same worries were raised when asset purchase programs were introduced in the wake of the 2008 financial crisis, and yet inflation proved an illusory worry. Importantly, money is killed when it is used to repay bank loans. And much of the new central bank money being created will be used to do that, whether its governments, businesses or households paying off the large debts that are likely to amass over the coming months. 

An additional source of deflationary pressure comes from China. The countries huge manufacturing capacity, and increasing automation globally, have pushed down the cost of ‘stuff’ globally, along with wages in a mature industrialised economy. These factors, along with weaker demographics (older populations in wealthy countries spend less), may continue to neutralise the money creation that is currently taking place. 

Multi-asset investing. Stocks perform best with mild inflation. Real assets, being physical assets with actual use, use such as commodities and real estate, shine most during high inflation. Deflation is often accompanied by economic recession and risk aversion, which government bonds enjoy. All of these can be found in most multi-asset funds. The uncertainties over how COVID-19 will affect savers fully justifies a multi-asset approach to investing. The expected returns, relative to the risk taken (ie, volatility), can easily better a portfolio made up entirely of stocks or bonds. 

Brexit and sterling. If we see a surge in U.K growth in the second half of the year, from pent-up demand and continued loose fiscal and monetary policy, the government may decide that the near-term economic cost of leaving the E.U on 31st September without a deal is worth taking, because any economic fallout will be hidden within noisy economic data. Currency investors, however, are likely to be looking ahead and will factor in the likely medium and long term hits to GDP growth and tax revenues, compared with leaving with a free trade deal in place with the E.U. They may prove unforgiving, especially if a post-crisis mini-boom results in a widening trade and current account deficit.

Stay well.

Older posts

Investment Outlook
April 08, 2020

Investment Outlook
March 05, 2020

Investment Outlook
February 19, 2020

Investment Outlook
February 04, 2020

Investment Outlook
January 21, 2020

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