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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Video
January 04, 2017

Outlook for Capital Markets in 2017
Tom Elliott

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.

Older posts

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

Market jitters over central banks' supposed change of policy
Central banks do not have a Plan B to re-flate the global economy. Loose monetary policy will continue despite concerns over its effectiveness
September 16, 2016

Will market volatility return in September?
Tom Elliott looks at key central bank meetings this month, which may move capital markets and trigger an end to the summer's placid market conditions
September 07, 2016

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Blog
January 09, 2017

Investment Outlook 8 January 2017
Tom Elliott

Current market conditions: Prepare for a short-term boom in the US economy, accompanied by a strong dollar. Suggested portfolio weightings over the next year to eighteen month for a diversified multi-asset portfolio: 1) Underweight fixed income relative to equities 2) In equities, overweight developed world equities versus emerging markets. In US equities, a bias towards small and mid-cap, in European and Japanese equities a bias towards exporters. 3) within fixed income, a short duration bias.

 

This week: A positive outlook for the U.S fourth quarter earnings season, fiscal policy replaces monetary policy, emerging stock markets may struggle, the vacuum at the heart of Brexit.

Review of markets

  • Global stock markets have made a solid start to 2017, thanks to positive economic data from the U.S, China, Eurozone and the U.K. Indeed, the strength of U.K manufacturing and services output growth during December, and more generally since the summer’s Brexit vote, has led to a bout of soul-searching by British economists over the profession’s ability to forecast. Meanwhile strong Chinese economic data has caused an unexpected and sharp rise in the renminbi against the dollar in recent days, confounding the consensus view amongst many financial economists that the renminbi is overvalued against the greenback.
  • U.S data included good December employment and wage growth data, but perhaps the most telling data release was the consumer confidence index that currently sits at a 15 year high. Obama hands over to Trump an economy in good shape.
  • The S&P 500 and Nasdaq Composite both saw new all-time highs reached on Friday, while the Dow Jones is once again close to passing the psychologically important 20,000 mark. The FTSE 100 ended the week at a new all-time high of 7,210, after its fifth consecutive weekly rise. Japan was the best performing major market, with the Nikkei 225 up 1.8% and slightly outperforming the S&P 500. Since the New Year, the MSCI World index is up 1.9% in USD, 1.7% in local currency terms, reflecting a slight fall in the dollar after having reached a 14-year high on a trade weighted basis just before Christmas.
  • Government bond yields rose, and bond prices fell, leaving the Barclays Global Aggregate bond index down slightly at 0.02% in USD.

A positive outlook for the U.S fourth quarter earnings season

  • The outlook for developed stock markets in 2017 appears positive, with global GDP growth perhaps at 3.5% this year. A stronger contribution will come from the U.S this year than in 2016, while in China the authorities will do all they can to maintain GDP growth at around 6.5% in order to ensure social and political stability.
  • On Wall Street, the third quarter’s earnings season saw the S&P500 come out of a profits recession. Since then, growth in the U.S economy has accelerated, leading analysts to predict low double-digit earnings growth for the S&P 500 index in aggregate for the fourth quarter earnings season which starts on Monday. Energy and materials (eg, mining stocks) are likely to lead the way, with financials and IT also expected to report strong earnings growth.

Fiscal policy replaces monetary policy

  • Helpfully, fiscal policy is now being seen in many major economies as key to raising inflation, and stimulating demand, after almost a decade in which loose monetary policy has (strangely) failed to do this.
  • In the U.S, Trump appears set to lower taxes and boost infrastructure spending. It is true that the American economy does not need a Keynesian fiscal stimulus right now, and that inflation is the likely result. But that is a problem for next year. Perhaps the biggest risk to my bullish stance on U.S and global stocks for 2017 comes from the Fed acting pre-emptively against inflation, and taking away the proverbial punch bowl before the Trump reflation has even begun. Then the valuation case for equities relative to bonds and cash is in danger of wilting.
  • Elsewhere there are also signs of a more relaxed approach to fiscal policy, which will support regional stock markets. In Germany the government’s budget is now running at a 1.0% surplus and fiscal austerity is likely to ease considerably, leading to an end in year-on-year cuts in government spending in the economy (arguably it has been an inappropriate policy for Germany to have pursued, given its political objective of absorbing hundreds of thousands of migrants and holding the E.U together). In the U.K Chancellor Philip Hammond announced in November £23bn of new infrastructure funds to be made available, and a fall in corporation tax and income tax thresholds. In Japan, Prime Minister Abe announced a fresh Yen 4.6 trillion (then equivalent to $45 billion) stimulus package.
  • Crucially, higher bond yields (resulting from increased inflation expectations) are good news for banks profits, since the spread between the short term rates they borrow at, and the long term rates they lend out at, expands. A stronger banking sector, particularly in the U.K and the euro zone, should support investment and consumption.

Emerging stock markets may struggle

  • Emerging markets may struggle this year, as higher USD borrowing costs and a strong dollar increase the estimated $9bn burden of corporate dollar-denominated debt taken on since 2010. Internal stability in Turkey appears to be at risk. Mexico and many Asian countries vulnerable to protectionist measures from the Trump administration. However, there is the possibility of a ‘reset’ of relations between Russia and the West if Trump and Putin can turn their friendly rhetoric into substance. This might lead to a continuation of the recent recovery in Russian stocks (and the rouble), that has so far been largely driven by the upturn in energy prices. Once hopes that Trumps motives on this issue coincide with those of his NATO allies.

 

The vacuum at the heart of Brexit

  • Sterling will continue to be the weathervain for market sentiment over Brexit. Rising when a ‘soft’ Brexit appears more likely, and falling when it fears a ‘hard’ Brexit or no exit deal at all. Large exporters and multinational companies will see their (sterling) share prices rise when their dollar, yen, and euro earnings are flattered by a weak pound and see them fall when the opposite happens.
  • British Prime Minister Theresa May has promised a significant speech, soon, on what type of Brexit her government will seek. This is to counter a growing perception that when exit negotiations with the E.U finally start, there will not be a coherent strategy.
  • However, we shouldn’t expect anything more solid than the platitudes she has already given us (‘Brexit means Brexit’, a ‘red white and blue Brexit’, a ‘Brexit that works for everyone’). The government argues such vagaries are a deliberate plan to keep their demands secret from Brussels, in order to boost their hand at the negotiating table.
  • But it surely also reflects the difficulty of squaring the demands of the isolationist Brexiters, who want less globalisation and immigration, with those who supported Brexit in order for Britain to be more global, and who see trade deals with India, the U.S etc replacing our current focus on the E.U. The first group are mostly working class, often in the North, many of whom are traditional Labour voters and whose support for the current government helps it maintain a massive 13% lead in the opinion polls*. The second group are heavily represented in senior government positions and are leading the search for a coherent Brexit plan.
  • Then there are the opinions of those voters and politicians who did not support Brexit in last June’s referendum, which the government has so far studiously ignored.
  • The incompatibility of the two types of supporters of Brexit make it a difficult project to deliver, irrespective of whether the government seeks a ‘hard’ Brexit or a ‘soft’ Brexit. It increases the risk of the U.K leaving the E.U in spring 2019 with no negotiated exit, with no replacement trade deal with the E.U or with any other major economy, and not knowing if it wants such deals or not.

 

*YouGov poll, 6th January

Older posts

Asset allocation in 2017: it’s all about the Fed
Tom Elliott believes that it will be the Fed's response to Trump's fiscal policies that will determine whether we get a reflationary boom for the U.S economy or not. Best to keep some boring 'bond proxies' in a U.S stock portfolio, just in case the Fed takes fright at a rise in inflation.
December 28, 2016

Riding the Camel 5 December 2016
Current racing conditions: unreliably firm. Prepare for a boom, and possible bust, in the U.S economy with a strong dollar and tighter American and global monetary conditions. Suggested portfolio weightings over the next eighteen month for a diversified multi-asset portfolio: 1) Underweight fixed income relative to equities 2) In equities, overweight developed world equities versus emerging markets with a bias towards small in US equity exposure 3) In fixed income, a short duration bias.
December 08, 2016

Riding the Camel - The Trumpflation rally
Current racing conditions: unreliably firm. Prepare for a boom, and possible bust, in the U.S economy with a strong dollar and tighter American and global monetary conditions. Suggested portfolio weightings over the next eighteen month for a diversified multi-asset portfolio: 1) Underweight fixed income relative to equities 2) In equities, overweight developed world equities versus emerging markets with a bias towards small in US equity exposure 3) In fixed income, a short duration bias.
November 22, 2016

Riding the Camel 9th November 2016 - Trump Edition
Riding the Camel by Tom Elliott - Trump Edition A look at how investors should respond to Donald Trump's election victory.
November 09, 2016

Riding the Camel 6th November 2016
Current racing conditions: remaining soft. Q4 asset allocation preferences (unhedged US dollar-based, updated at start of quarter): neutral equities vs. fixed income relative to benchmark. Prefer emerging stock markets to developed. Longer term outlook is to be pro-risk assets.
November 06, 2016

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