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
July 17, 2018

U.S stocks and bonds are benefitting from global investors' nervousness
Tom Elliott

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.

Older posts

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

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

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Blog
July 13, 2018

Investment Outlook
Tom Elliott

Market sentiment:  Anxiety has eased a little. The VIX index of implied index of volatility on the S&P500 (the so-called ‘ fear gauge’) is now at 12.5, significantly reduced from the 17 on the 2nd July when the last edition of this note was written. But investors remain torn and uncertain.

Investors can protect themselves: a fully diversified multi-asset fund will offer some protection against any market upsets, since it will contain a mixture of negative or low-correlated assets (ie, while some fall others may rise, or remain stable). These sorts of funds should be at the heart of any investment portfolio. More short-term ‘satellite’ positions, in more narrowly-focused funds, might currently favour quality large cap stocks in developed stock markets, and within fixed income, short dated government bonds and cash. This position might be at the expense of emerging market stocks and high yield bonds. Comparing interest rates and growth between countries and regions, it seems likely that we will continue to see dollar strength over the coming months.

The bear’s case: on the one hand is the potential disruption that will be inflicted on the global economy, and capital markets, if a full trade war develops between the U.S and the rest of the world. Complex supply chains will be broken, input prices will go up and access to overseas markets go down. New investment will be required as companies move their manufacturing plants, while plants elsewhere will be shut. In addition are the problems caused -particularly for emerging market economies- by a strengthening dollar. This is itself the result of steadily rising interest rates by the Fed, with the promise of more to come, and also it reflects the dollar’s traditional safe haven status.

Meanwhile investors of a certain ‘we are all doomed’ persuasion cite the continuing flattening of the U.S Treasury yield curve as an indicator of a coming recession. They also ask why global stock markets have not responded to strong global corporate earnings growth this year – was it already priced in? Or is this ‘as good as its gets’ in the current earnings cycle? Perhaps the 23% fall in the Chinese CSI 300 index (an index that covers the country’s 300 largest companies) from its 4,365 high in January to its recent July low, and Xiami’s ignominious IPO launch earlier this week, is a foretaste of what western stock markets can look forward to?

The bull’s case: on the positive side, the U.S economy appears to be in an enviable position of relatively strong GDP growth (consensus estimates are for around 2.8% growth this year). Increased revenues are helping drive corporate profits growth, rather than a reliance on cost-cutting that has marked much of the profits growth in the post financial crash years. The market data company FactSet is forecasting average S&P500 second quarter earnings growth to be in the region of 20% year-on-year. Much of the acceleration in economic growth has been attributed to Trump’s tax cuts, and the return of cash by U.S companies that was kept abroad until Trump altered the tax liability on repatriating foreign profits. From the increased profits we are seeing higher wages being paid, thanks to the tight labour market conditions.

Meanwhile, many U.S commercial borrowing rates remain stable even as the Fed raises interest rates. The Treasury bond market simply refuses to worry about rising short-term Fed interest rates and a potential inflation problem in the economy. The 10yr Treasury yield stands at 2.84%, a level it first saw in the current cycle as long ago as 14th February, despite yesterday’s June’s CPI inflation data which showed a rise of 2.9% year-on-year, the highest rate since 2012. Certainly, this helps put fuel on the fire of the doom-mongers’ ‘flattening yield curve’ argument. But the practical effect is to keep commercial lending rates stable. There is, as yet, no sign yet of ‘crowding out’ of commercial borrowers as the U.S Treasury increases bond issuance in order to plug the widening fiscal deficit.

Brexit: last Friday, cabinet ministers in the U.K government met to agree a position on what they wanted from Brexit, within the range of options that civil servants told them might be accepted by the E.U. The result was a list of goals amounting to a soft Brexit, which contained numerous contradictions in order to try to appease those demanding a hard Brexit. For instance, the agreed policy seeks unlimited access to the E.U market for British goods, with no hard borders between the two, while it also promises trade deals with third countries, such as the U.S. However, given that the E.U will seek to impose its own product standards on any goods coming into the E.U, it is hard to see how Brussels will allow Britain to import U.S goods into a U.K / E.U free trade area, which could then be re-exported around the E.U, given that there will be no hard borders. Even Donald Trump has grasped this. The U.K must either accept E.U or U.S product standards.

A soft Brexit is the most likely outcome (with no ability to sign trade deals with the U.S), and with it an eventua rally in sterling to be expected. But the recently-resigned cabinet ministers Boris Johnson and David Davis may yet cause enough trouble for May’s government to be unable to agree any deal with the E.U by the date of the U.K’s departure next March. This would be bad for sterling, given the likelihood of political and economic chaos following.

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
July 02, 2018

Investment Outlook
June 06, 2018

Investment Outlook
May 28, 2018

Investment Outlook
May 10, 2018

Investment Outlook
April 27, 2018

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