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
April 27, 2018

Stock Market Outlook
Tom Elliott

Tom Elliott explains why stock markets are currently jitterish, despite recent strong U.S corporate earnings and good global economic growth prospects for 2018.

Older posts

Market sell-off is likely to be short lived
Tom Elliott explains why the recent drop in global stock markets is unlikely to turn into a significant correction.
February 05, 2018

Why a little Emerging Markets and Japan in your portfolio might be good
Compared to the U.S, stock markets in emerging markets and Japan both offer value and are leveraged plays on robust global GDP growth.
January 09, 2018

The soft Brexit deal: Good news for the U.K
Thanks to pressure from the Republic of Ireland this week, the 8th December agreement on Brexit divorce terms suggests strong U.K regulatory ‘alignment’ with the E.U will persist after Britain leaves the E.U. The ambiguity of the text makes it difficult to work out its substance, but this suggests that U.K is now course to remain in the single market and customs area for agricultural and manufactured goods. This is good news for sterling and the U.K economy.
December 08, 2017

Explaining the Sharpe and the Information ratios
Tom Elliott, deVere Group's International Investment strategist, looks at two of the most widely used metrics in fund management for assessing performance.
October 09, 2017

Why Invest in Bonds?
Bonds continue to be a valuable source of diversified returns within a multi-asset portfolio.
August 30, 2017

Video Archive >>

Blog
May 10, 2018

Investment Outlook
Tom Elliott

Market sentiment: Remaining apprehensive and braced for a bumpy summer. Fundamentals for global developed stock markets remain good, with reasonably strong and synchronised global economic growth helping push the MSCI World index is up 1.2% in USD terms (+1.7% in local currency) since 1st May. There has been a flurry of significant M&A activity, suggesting a high level of business confidence. But geopolitical and macro-economic worries are mounting. The VIX index of implied volatility on the S&P 500 index stands at 14, which is high relative to recent years and it suggests investor unease. The case for a balanced, multi-asset approach to investing is compelling.

It is not only Trump’s exiting of the P5+1/ Iran December 2015 agreement, and the possibility that this is another step on the road to a new conflict in the Middle East, that causes concern. Investors are also wondering whether the very strong first quarter U.S corporate earnings results seen recently represent the peak in earnings growth of the current business cycle. The flattening Treasury yield curve would suggest so. But others, not least the IMF, forecast an acceleration in U.S and global economic growth over the coming months in part thanks to the recent business and personal tax cuts in America.

Meanwhile, euro zone and U.K economic data has been weaker than expected, contributing to euro and sterling weakness against the dollar. This may prove to be a temporary, weather-related, setback and the euro zone regional cyclical growth story resumes. We hope so. But in the U.K there is increasing unease that the ‘Brexit dividend’, with billions of pounds suddenly available to spend on the National Health Service, may prove to have been a myth. The government remains unable to articulate its desired goal in Brexit negotiations, with its stated aim of keeping an open border with the Irish Republic at odds with the goal of leaving the EU’s customs union. The risk of no exist deal with the E.U when the U.K leaves next March, remains, and with it the risk of chaos for importers and exporters.

The U.S dollar has rallied in recent weeks, in particular against emerging market currencies, with the Turkish lira and Argentinian peso particularly under pressure. A combination of higher yields on dollar-denominated debt, and a more expensive dollar in local currency terms, has sent a chill through emerging market stock and bond markets. The MSCI Emerging Markets index is down 1.7% in USD (but up 0.3% in local currency) since the start of May.

While this is going on, we also have the upcoming summit meeting between Trump and North Korea’s Kim il Jong. The outcome is very uncertain, as is Trump’s response to Korea’s likely insistence on keeping nuclear missiles.

Iranian sanctions: E.U countries will seek a waiver from secondary sanctions that Washington may wish to impose on those who trade with Iran. Meanwhile, Asian countries -particularly China- will probably carry on buying as before- though Japan is likely to feel pressure to tow the U.S line. Saudi Arabia has offered to increase its production in order to make good any reduction in Iranian supplies, as U.S sanctions are tightened. Therefore, there may eventually be limited impact on the Iranian economy, and the oil price, from America pulling out of the P5+1 deal.

If Trump has taken the U.S out of the deal in order to force it to the negotiating table, to include issues of concern to Saudi Arabia and Israel, he will need Iran to feel real pressure. This means cutting oil sales significantly and curbing Iran’s access to petro-dollars. It means applying secondary sanctions on all those who trade with Iran, which will heighten tensions with European allies, who favour the existing agreement, and with China that does not wish to be seen bullied by the U.S.

End of cycle investments? Helpfully Bank of America Merrill Lynch have published a list of investments to own if the U.S and global economy are approaching the end of their current periods of expansion. They suggest going long triple-rated bonds, Treasury bills and the U.S dollar. Going short emerging market equity and debt, the U.S tech sector (particularly the FAANGs), and high yield. But while every economic cycle does eventually end in a recession, cycles can have multiple mini-peaks and troughs (just look at the Australian economy over the last two decades). This means that an investor positioning their portfolio for a recession may well get caught out and is -again- an argument for a balanced multi-asset approach to investing.

Italy and bank capital: The inability of the major Italian political parties to form a new government, following the inconclusive March election, has led to a rise in yields on its government bonds and to stock market weakness. Another election looks possible, perhaps in July. Meanwhile the country’s unstable banks continue to draw criticism. Many are concerned that the banking sector does not have enough loss-absorbing capital, in the form of ordinary shares (classed by the regulators as Common Equity Tier 1 capital), with which to absorb losses once bad loans are recognised. UniCredit is being pursued by a hedge fund for treating EUR 2.98 bn of convertible and subordinated equity-linked securities as CET1, a classification that has been agreed with the European bank regulators despite these securities clearly having seniority over common stock and containing debt-like elements. These securities equate to two thirds of UniCredit’s equity capital.

Many fear that if another European bank crisis is to happen, it will be in Italy because of its under-capitalised banks and its large bad loan problem that cannot be resolved because of the lack of real CET1 capital. The only solution is for banks to raise large quantities of fresh capital through new sales of ordinary stock, perhaps significantly diluting existing shareholders.

A multi-asset portfolio for the long term. We favour a long-term multi-asset approach to investing, whereby investors choose a suitable combination of global equities and bonds (depending on their risk profile and investment horizon) and leave the portfolio unchanged. Regular re-balancing ensures winners are sold and losers are bought – which financial history, and common sense, supports. 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
April 27, 2018

Investment Outlook
April 13, 2018

Investment Outlook
March 29, 2018

Investment Outlook
March 13, 2018

Investment Outlook

January 28, 2018

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