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 10, 2019

Outlook for 2019: a year of modest, but positive, stock market returns
Tom Elliott

Tom Elliott, investment strategist at the deVere Group, explains why he believes stock markets will deliver modest gains in 2019.

Older posts

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

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

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Blog
January 09, 2019

Investment Outlook
Tom Elliott

Market sentiment. Remaining nervous. Was the fourth quarter sell-off a late cycle squall, that will correct itself? Probably. Or despite the recovery rally seen in early January, does it herald the onset of a bear market? Probably not. We will learn this year what the 13.3% fall on the MSCI World Index (in dollars) over those three months signified. But the underlying health of the U.S and global economy suggests global stock markets offer value at current multiples and will generate positive returns in 2019. JP Morgan Asset Management calculates that forward price earnings multiples on all major stock markets at the end of December – including the U.S- were below the average since 1990. The U.K and Japan, substantially so.

 

Market weakness sits oddly with generally good global growth data. What is apparent is that there has been a dislocation between underlying economic growth and corporate earnings, which are both generally good, and investor appetite for risk assets - which is weakening. Indeed, investor nervousness has spread into the banking sector, where three-month dollar LIBOR rates ended December at 2.8%, the highest rate since the dark days of November 2008.

 

The contradiction is easily explainable, it is being driven by Fed policy. 2018 was the first year in which we saw the Fed reverse its quantitative easing programs, through destroying $50 bn a month of interest and capital repayments being received on its bond holdings. This, together with a well-announced program of interest rate hikes, is testing investor’s faith in the Fed’s ability to ‘normalise’ U.S monetary policy without tipping the economy into recession.

 

And yet the U.S economy, while now growing at a slower pace than in the summer of 2018, is headed for perhaps 2.3% GDP growth against the 2.5% of 2018 according to the December forecasts from the Fed. The one-off tax cuts of December 2017 that gave such a boost to U.S disposable income last year will not be repeated, but unemployment -already at a multi-decade low- looks set to fall still further, which will support consumer spending.

 

The Fed can reverse course. The important thing to remember is that, should the U.S economy falter significantly (and the market bears be proved right), the Fed will have room to reverse the policy. Inflation is modest, at 2.4% using the Fed’s preferred measure (the PCE). Fed chair Jay Powell has made it clear in recent weeks that the central bank will be flexible in its approach. This has been treated by the market as a sign that interest rates may peak in the current cycle, at a lower level than forecast in September.

 

Indeed, those who fret over other central banks also tightening monetary policy too soon forget that the ECB and the Bank of Japan can also reverse course and increase their monthly asset purchases.

Treasury bond yields have fallen in response to Powell’s more conciliatory remarks, so increasing the relative attractiveness of dividend-paying, defensive stocks. A trend that is likely to persist in 2019 as investors continue to fight shy of riskier asses that are subject to the greatest volatility, rediscover dull but worthy value stocks with good dividend cover.

Hence my belief that we are not facing the start of a bear market. However, a full-throttle risk on approach is clearly not suitable either given expectations of continued risk aversion and volatility by investors. The only ‘winning’ investment strategy would be a multi-asset portfolio, that includes equities, bonds, property, and alternatives. Financial history suggests such a mix will deliver better risk-adjusted returns, over a number of economic cycles, than any one asset class.

 

Risks. The biggest risk is of a eurozone recession and bank crisis, with a lack of political leadership now that Angela Merkle is in declining influence in Germany, and so amongst other eurozone leaders.

The region a sharp downturn in third quarter GDP, to 1.6% on a year-on-year basis, but only 0.6% growth at an annualised rate. Germany suffered a slight contraction in aggregate demand over the period, thanks in part to the weak auto sector. Data released in recent weeks suggests the fourth quarter did not see a pickup in eurozone demand, making it a poor outlook for 2019.

 

However this is not necessarily a ‘sell’ sign for the region’s stock markets. After a decade of underperformance, disappointment may be already baked into eurozone share prices.

 

The U.S/ China trade war is increasingly focusing around technology and China’s industrial policy. Some of the issues will be insurmountable, for example, China will not want to abandon its lead in 5G internet technology under any circumstances. But with China’s economy already slowing before the full effects of the stalled tariffs are felt, Beijing will want a deal. As do western companies who trade with China. U.S/ China relations are prickly, and beneath the American’s accusations of unfair trade lurks a real fear that China is stealing its technology in order to supersede the U.S as the foremost global power.

 

In the U.K a no-deal Brexit looms. This is not a choice that the government, or members of parliament, will vote for. If it happens, it will be by default because Parliament has failed to vote through an agreement with the E.U on the U.K’s future political and trading relationship with the E.U. It is not just that there is no majority in Parliament for Theresa May’s Brexit deal (a vote is due on 11th January), but there is no majority for any form of agreement with the E.U.

 

A no-deal Brexit will probably be chaotic for the country in the near term, pulling the U.K into recession. Longer-term rushed trade deals with the U.S and the E.U, on generally poor terms to the U.K, will restore growth to the economy. Sterling will weaken. However, FTSE 100 stocks will benefit from a weaker pound since most of their earnings are from abroad. It will be smaller, domestic focused stocks that are worst hit.

 

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
December 13, 2018

Investment Outlook
November 26, 2018

Investment Outlook
November 12, 2018

Investment Outlook
October 29, 2018

Investment Outlook
October 07, 2018

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