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
March 20, 2019

The beginning of market tranquillity?
Tom Elliott

Older posts

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

An imminent bear market looks unlikely
Tom Elliott argues that a more gentle approach to rate hikes by the Fed looks set to support risk assets and how May's Brexit deal may go to a second vote in Parliament if it votes against on 11 December - for May, there really is no alternative
November 30, 2018

Should stock market investors worry about the recent rise in bond yields?
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.
October 10, 2018

Video Archive >>

Blog
March 20, 2019

Investment Outlook
Tom Elliott

Market sentiment: Firm. Many reasons support optimism on risk assets: Chinese media reported ‘substantive progress’ on the U.S/ China trade talks, and there is hope that Beijing’s fiscal stimulus policy will shore up weakening GDP growth. Falling core government bond yields -with the 10yr U.S Treasury ending last week at 2.60%- reflect the more dovish tones coming from the Fed and the ECB, which should help the U.S and global growth. And as risk-free rates fall, stock market valuations appear more attractive. We have seen a slight recovery in eurozone economic data, and there is increasing confidence that the U.K will avoid a chaotic no-deal Brexit. In addition, developed stock markets benefit from a large number of corporate share buyback programs that are currently in progress.

 

The VIX index of implied volatility on the S&P 500 stands at 13.5, back to levels last seen in October. Assuming that the Fed remains ‘data dependent’, as it recently promised to be, U.S Treasury and global bond yields will remain subdued, helping this outbreak of tranquillity amongst risk assets to persist.

 

Watch out for slower U.S growth. In the interest of balance, there are some less helpful themes that investors should be aware of. Such as the risk of panic in the U.S high yield bond market, on account of the excessive quantity of very low investment grade debt (BBB rated) in issuance. This threatens to swamp the high yield market should a wave of downgrades occur. And we have the continual risk that Italian banks may precipitate another eurozone financial crisis.

 

But foremost is the risk of a greater-than-expected weakening of U.S GDP growth, which will hurt corporate earnings of domestic-orientated companies in the U.S and so test current stock market valuations. Recent economic data suggests that this, rather than a bounce upwards in inflation as wage growth picks up and so causing the Fed to resume its interest rate tightening, is the greater risk facing the U.S economy.

 

Investors have long anticipated a weaker phase in U.S growth this year, just because the sugar-rush of the Trump tax cuts that boosted growth last year was bound to fade. This perhaps explains why, after an initial negative reaction, investors took the weak February jobs growth data (just 20,000 new jobs created), along with weak consumer spending data, on the chin. Furthermore, the Fed is now openly supporting growth and is no longer seen as carelessly raising interest rates, irrespective of the impact on the economy.

 

But economists are relentlessly downgrading their GDP estimates for the first quarter, suggesting that the slower growth is worse than anticipated. Last week the Atlanta Fed estimated of first quarter GDP growth will come in at just 0.2% at an annualised rate (from a previous estimate of 0.5%). Consensus estimates of around 2.4% GDP growth this year look somewhat optimistic. Meanwhile, headline inflation remains mute, despite some encouraging wage inflation lately. CPI in February came in at just 1.5% y/y (compared to 2.4% over 2018 as a whole) – well below the 2% target rate, and helping to justify the Fed’s January U-turn on policy.

 

The U.S remains the world’s largest economy in USD terms by some margin, and if the second quarter fails to see a strong pickup in demand there will be worries that the U.S economy may be heading for European-like GDP growth this year. This will have a negative impact on the global economy, and also encourage protectionist policies from the White House (which needs little encouragement).

 

What does this mean for investors? Given the positive themes mentioned above, particularly the more relaxed monetary policies of the Fed and the ECB, stock markets may well be able to cope with a degree of weaker-than-expected U.S GDP growth. But diversification away from the U.S stock market may be a helpful defensive move for investors, particularly given that Wall Street’s valuation is much higher than for other stock markets (the 16.5 times price earnings ratio on the S&P500 compares with 12 times for the FSTE All-World ex U.S index). While few global investors would relish selling the U.S and putting the proceeds into the slow-growth economies of Europe and Japan, emerging market equities still offer attractive valuations relative to both their history and to developed stock markets. And do remember to always hold bonds in your portfolio, they like miserable news!

 

Brexit. The U.K government continues to try to persuade the House of Commons to accept its Withdrawal Agreement Bill and the political declaration on the future of U.K/E.U relations. A third vote is expected on Tuesday or Wednesday of this week if the government whips can be sure that enough members of the DUP and European Research Group (arch Tory Brexiters) will swallow their distaste for the Irish backstop and vote in favour. If it succeeds then May will ask the E.U for a three-month extension to Article 50 in order for Parliament to pass the necessary legislation to give Brexit effect.

 

This would give a further boost to sterling, which rose two and a half U.S cents last week after the House of Commons voted against a no deal Brexit (a largely symbolic vote, but one that helped reassure investors).

 

If the vote is not held by Wednesday, a much longer delay to Brexit is likely – possibly a few years. This is something Brexiters dread because these other options to May’s deal will be probably be explored by Parliament and the E.U that might include a softer Brexit than that which the existing Bill offers, such as a Norway Plus arrangement. Other options may include a second referendum or a general election that might deliver a House of Commons capable of passing Brexit-related legislation. Not led by the Conservative party, but perhaps by Labour whose Brexit current position (in so much as it is discernible) is to remain in the customs union permanently.

 

A long delay to Brexit would also boost sterling since the possibility of no Brexit would grow. In fact, it is difficult to see a downside to sterling, unless a no deal accidentally slips through on account of divisions within the House of Commons over an alternative to May’s Brexit deal.

 

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
February 25, 2019

Investment Outlook
February 14, 2019

Investment Outlook
January 24, 2019

Investment Outlook
January 09, 2019

Investment Outlook
December 13, 2018

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