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 18, 2019

Global stock markets: a strong start to the second quarter
Tom Elliott

Tom Elliott, investment strategist at the deVere Group, believes that stronger than expected GDP growth in China, a likely trade deal between the U.S and China, and the prospect of solid economic growth in the U.S persisting for some time to come, all help support global stock markets and other risk assets

Older posts

Fears of U.S. economic recession are overdone
Investors are concerned that the inverted U.S yield curve signals an upcoming recession. But the Fed has shown itself to be adaptive and has room to cut rates and so support economic activity and stock market valuations.
April 01, 2019

The beginning of market tranquillity?
March 20, 2019

Fed easing of monetary policy, optimism on U.S/ China trade, while a soft Brexit approaches
February 26, 2019

The effects on the FEDs U-turn, the implication for weaker euro zone banks & May’s Brexit policy
Tom Elliott looks at the Fed's U-turn on interest rates, the ramification for weaker eurozone banks of Santander's decision not to call on a perpetual bond, and May's triangulated Brexit policy- that may leave the U.K with a very soft Brexit.
February 14, 2019

Outlook for 2019: a year of modest, but positive, stock market returns
Tom Elliott, investment strategist at the deVere Group, explains why he believes stock markets will deliver modest gains in 2019.
January 10, 2019

Video Archive >>

Blog
April 18, 2019

Investment Outlook
Tom Elliott

Market sentiment: Good. The second quarter has begun well, with the MSCI World Index of developed stock markets up 2.7% in both U.S dollar terms and local currency terms since 1st April. European stock markets have been particularly strong. Improved economic data from China, where the combined fiscal and monetary stimulus appears to be supporting GDP growth, has been a major contributor to global investor sentiment in recent weeks, together with expectations of a deal (of sorts) to be agreed by the U.S and China over their trade dispute. Early first quarter U.S corporate earnings numbers have come in roughly in line with expectations from a handful of bell weather stocks, helping to reduce fears of an earnings recession (defined as two continuous quarters of year on year earnings decline).

 

The Barclays Global Aggregate Bond Index of investment grade bonds is down 0.4% in dollars. The VIX index of implied volatility on the S&P500 is at 12.8, a level last seen in early October last year and suggesting investors are relaxed.

 

U.S earnings recession. Expectations of Q1 and Q2 S&P500 average earnings being lower than the same period last year shouldn’t worry investors. The Trump tax cut boom of last year was well flagged, as was the hangover we’ve seen since. True, stocks are slightly more expensive compared to their 25yr history on the forward p/e, Shiller p/e, and price-to-book. But risk-free rates (ie, Treasury yields and bank deposit rates) are unusually low, and not going anywhere – which justifies more generous multiples than in the past.

 

Just because the current U.S economic cycle is long in the tooth doesn’t mean it has to end. Note JP Morgan’s Jamie Dimon’s comment last week, on announcing record quarterly earnings for any U.S bank: the U.S economy ‘can go on for years. There is no law that says it has to stop’.

 

The U.K: a coming Labour-led economic boom and bust?  The U.K may face an election this year if the government continues to be unable to push Brexit legislation through the House of Commons. Opinion polls suggest a collapse in support for the Conservative party (though this may recover under a new leader). There is, therefore, the possibility of an outright majority of M.Ps seats being won by the Labour party, which is led by the confirmed Marxists Jeremy Corbyn, and the shadow chancellor John McDonnell.

 

The re-nationalization of utilities, railways, and higher taxes on ‘the rich’ all form part of the Labour agenda. And after eight years of fiscal austerity by the Conservative-led government, there is now money in the chest for some increase in spending on schools, hospitals, and pet projects. The budget deficit is low by historical standards, at around 1.6% of GDP. A strong fiscal stimulus to the economy is likely in the early years of a Labour government, boosting GDP growth and the profits and share prices of domestic-focused companies.

 

Furthermore, a Labour government will benefit from a surge in pent-up consumer and business spending if Brexit is abandoned, on account of a second referendum that many Labour activists are calling for.  

 

However, if the past is anything to go by, the leadership will find it hard to limit its generosity. It will make spending commitments to all who ask, based on the wilfully false premise that the post-Brexit wave of consumer spending is a structural change in demand, and that the bond market will be relaxed so long as inflation remains low -which is unlikely to happen with so much new spending stimulating the economy.

 

The U.K might then see a substantial rise in borrowing -not only on investment projects but totemic projects such as nationalisation of companies. Meanwhile ‘tax the rich’ policies will encourage capital flight and emigration, and so reduce the amount of income and other taxes associated with the wealthy. Leading to more borrowing and higher taxes on those who can’t flee. Boom and bust in five years.

 

Sterling-based investors can and should protect themselves from this by ensuring wide geographic distribution of assets.

 

China. What are the implications of a current account deficit this year? For some years analysts have pondered the question ‘what happens if China stops buying U.S Treasuries?’. The consensus is that, with a current holding of $1.4 trillion of Treasuries, China will not want to risk destabilising the Treasury market and suffering losses on its holdings.

 

But perhaps analysts have been asking the wrong question, which should have been ‘what happens when China stops buying U.S Treasuries?’. China is increasingly going to be importing capital as its current account swings into deficit, it will no longer be the creator of excessive savings that have helped keep down global borrowing rates. China will be buying far fewer financial assets abroad, instead, it will be using its foreign currency earnings to pay for imported goods and services -including overseas tourism. Analysts’ who focus on the $378 bn annual trade surplus with the U.S (in 2018) tend to forget that China’s current account surplus has shrunk from 10% of GDP in 2007 to just 0.4% last year, thanks to a boom in imports and overseas travel by Chinese.

 

Requiring foreign capital to fund its growth, Chinese equity and debt markets will have to be more foreigner-friendly and its companies more transparent over their ultimate ownership. Prospectuses in English, as well as Mandarin, might be seen. Meanwhile, purchases of U.S Treasuries are likely to fall, leading to the possibility of higher long-term U.S and global borrowing costs. Other emerging markets will have to compete harder for investment capital and probably pay more to investors.

 

A multi-asset portfolio for the long term. We favour a long-term run 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 any near-term weighting suggestions made in previous paragraphs.

Older posts

Investment Outlook
April 01, 2019

Investment Outlook
March 20, 2019

Investment Outlook
February 25, 2019

Investment Outlook
February 14, 2019

Investment Outlook
January 24, 2019

Blog Archive >>