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.

Twitter
Video
October 10, 2018

Should stock market investors worry about the recent rise in bond yields?
Tom Elliott

Tom Elliott discusses why inflation is unlikely to be behind the recent sell-off of U.S Treasuries and argues that monetary tightening may well lead to slower growth next year, possibly a decline in bond yields, while risk assets deliver stable (if modest) growth.

Older posts

Back to school with a sense of caution
Despite recent new highs for the S&P500, the investment outlook is unsettled. Too little attention is being paid to the steady withdrawal of liquidity by central banks, which may have profound implications for stock markets over the next six months.
September 04, 2018

U.S stocks and bonds are benefitting from global investors' nervousness
Tom Elliott looks at how investors' desire for lower risk investments is benefitting quality U.S stocks and long-dated Treasuries, which in turn - together with rate hikes from the Fed- supports the dollar.
July 17, 2018

Does Trump's apparent win over North Korea mean yet more problems for global free trade?
Tom Elliott argues that Trump faces a growing US trade deficit which may aggravate him and cause tensions with trading partners to worsen. This, and his recent success in talks with North Korea, may embolden him to launch the broad trade war that many economies have feared, believing that America can 'win' from it.
June 12, 2018

Will it be the twin deficits that end the current U.S economic cycle?
Tom Elliott, International Investment Strategist, explains why the current U.S economic cycle may last longer than many expect it to. But it may finally end when the rising twin deficits force the dollar down and bond yields to rise.
May 31, 2018

Stock Market Outlook
Tom Elliott explains why stock markets are currently jitterish, despite recent strong U.S corporate earnings and good global economic growth prospects for 2018.
April 27, 2018

Video Archive >>

Blog
October 07, 2018

Investment Outlook
Tom Elliott

Market sentiment: Nervous. Stronger than expected U.S economic data led to a jump in U.S Treasury yields mid-week, re-igniting fears of a bond bear market that might affect all financial assets as risk-free rates on government bonds rise. A strong upward revision to August’s jobs growth on Friday added to the fears, with the 10yr US Treasury yield ending Friday at 3.23%, up 29bp on a month ago. Global stock markets fell in response, tech and emerging markets especially, and the dollar resumed its rally. The oil price reached a four-year high, with Brent at $84 on Friday, representing an additional squeeze on oil importers’ incomes. Fears grew that the Italian government is heading towards a bust-up with the E.U over its budget proposals, leading to a sharp slide in Italian sovereign bond prices (and a rise in their yields).
 
A panic over what, exactly? Investors in all assets can be forgiven for fearing a bond market sell-off. Along with rising short-term dollar rates (cosy of the U.S Fed), a fall in Treasury prices (and a rise in their yields) would feed through into higher long-term borrowing costs for the U.S and the global economy. But if the stock market rally is about to end, is it really going to be because bond investors become afraid of the growth and inflation risks of the strong U.S economy? This is, surely, not realistic. 
 
Fed chair Jay Powell has repeatedly made clear his nervousness of reading too much into the recent uptick in U.S wage growth, and the tightening labour market. It is worth noting not only that September’s hourly wage growth, of 2.8% year-on-year, was actually lower than August’s 2.9%, but also that inflation expectations are broadly stable. It is too easy to forget in the clamour of last week’s headlines that August CPI inflation came in at 2.7%, down from 2.5% in July. And that the Fed’s preferred measure of inflation, the core PCE index, stands at just 2%.
 
With three more interest rate hikes expected next year, which would take the Fed’s target range to 2.75% - 3%, there is a growing risk not of inflation derailing the U.S economy, but Fed policy error. This would include not only raising interest rates too fast, but also its quantitative tightening programme that is withdrawing $50bn a month from the U.S economy, and so contributing to higher bond yields. 
 
The risk to stock market investors, therefore, comes not from a sharp bond market sell-off which raises the risk-free yields on Treasuries. It is from the Fed ignoring its chair’s own advice and tightening monetary policy faster than the American economy can stand.
 
Italian bonds. A new euro-crisis is brewing over the Italian government’s draft budget, which breaks the fiscal rules it had agreed with the E.U by projecting a 2.4% of GDP deficit in the coming fiscal year (and that is with the government using generous GDP forecasts). Italian government bond yields have risen sharply, on fears of a full-blown debt crisis for the country arising from the coalition government’s policies. This has put the country’s under-capitalised banks back under the spotlight since they -along with the ECB and Italian households- are significant holders of Italian government bonds. 
  
Indian stocks. Until its recent sell-off, the Indian stock market had been enjoying a good year in rupee terms, with robust corporate earnings growth supporting valuations, even if foreign investors have been hurt by the rupees fall against the dollar. Strong GDP growth, at 8.2% in the second quarter (year-on-year) is not to be sneered at. But few investors are still cheering as a weak currency, high oil prices and a looming financial crisis over the infrastructure group IL&FS – with $13 bn in liabilities- take their toll on investor confidence.
 
Similar to Turkey, analysts point to the country’s twin deficits as an aggravating factor, with the government’s large budget deficit and the country’s current account deficit fuelling inflation and making the economy reliant on foreign capital. In perhaps an echo of the Turkish central bank’s behaviour as its crisis unfolded, the Reserve Bank of India declined to raise interest rates on Friday, to defend the rupee.
 
Brexit. Considering the chaos that followed the recent Salzberg meeting, it seems odd that Brussels is now speaking of 17th October as a possible date for agreement on a key part of Brexit negotiations: the Irish border question. Talk is that it will offer the whole of the U.K access to its customs border when the U.K leaves the E.U in March of next year, with its subsequent relationship to the E.U to be hammered out later. Background: the U.K refuses to accept the E.U’s current backstop position on the Irish border (which is to have Northern Ireland remaining in the E.U customs border, with its customs border with Britain being in the Irish Sea). We can expect sterling to rally on such a soft Brexit, with many Remainers hoping that this temporary arrangement may become permanent. 
 
However, this would surely prevent the Brexitiers from achieving their goal of entering into trade agreements around the world, and thereby be regarded with suspicion by many in the Tory party? Meanwhile, on the E.U’s side, some will dislike the possibility of a temporary membership of the customs union from next March becoming permanent, as the U.K realises that the end ‘prize’ of full withdrawal from the E.U, and the temporary solution becomes a permanent one and so creating a new category of ambiguous E.U membership.
 
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
September 18, 2018

Investment Outlook
August 29, 2018

Investment Outlook
August 12, 2018

Investment Outlook
July 29, 2018

Investment Outlook
July 13, 2018

Blog Archive >>