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 09, 2018

Why a little Emerging Markets and Japan in your portfolio might be good
Tom Elliott

Compared to the U.S, stock markets in emerging markets and Japan both offer value and are leveraged plays on robust global GDP growth.

Older posts

The soft Brexit deal: Good news for the U.K
Thanks to pressure from the Republic of Ireland this week, the 8th December agreement on Brexit divorce terms suggests strong U.K regulatory ‘alignment’ with the E.U will persist after Britain leaves the E.U. The ambiguity of the text makes it difficult to work out its substance, but this suggests that U.K is now course to remain in the single market and customs area for agricultural and manufactured goods. This is good news for sterling and the U.K economy.
December 08, 2017

Explaining the Sharpe and the Information ratios
Tom Elliott, deVere Group's International Investment strategist, looks at two of the most widely used metrics in fund management for assessing performance.
October 09, 2017

Why Invest in Bonds?
Bonds continue to be a valuable source of diversified returns within a multi-asset portfolio.
August 30, 2017

Stock market investors should not fear the new tone coming from central banks
With inflation at or below central banks target rates in all the major economies except the U.K, the current market fear of a coordinated tightening of global monetary policy appears unwarranted. More credible risks to stock markets include the risk of a credit crunch in China, some over valued risk assets such as US tech falling out of fashion
July 06, 2017

U.K politics: chaotic, but potentially good for investors
In view of the chaotic state of the U.K government following last week's general election, investors might be surprised at how little sterling has fallen and U.K stock markets have been affected. This may reflect the fact that stronger economic growth is forecasted under a soft Brexit, which now appears possible, and with an easing of fiscal austerity.
June 13, 2017

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Blog
January 03, 2018

Investment Outlook
Tom Elliott

Market sentiment: Confident, with global stock markets entering 2018 with positive momentum. This confidence is supported by a reasonably strong cyclical upswing in world GDP growth that is being translated into corporate earnings growth, by a belief that central banks will not significantly tighten monetary policy unless justified by growth and inflation data, and by the U.S corporate tax cuts announced in December will boost Wall Street corporate earnings. In the face of continuing low interest rates and bond yields, investors have little alternative but to support risk assets if they want a yield that will beat inflation.

An acronym is currently being popularised that describes how many investors see markets unfolding in 2018: MOTS, standing for ‘more of the same’. I.e., solid returns for stock markets with continuing low volatility, and positive returns from investment grade bonds.

The risks to the MOTS scenario include central bank policy error, Trump turning America away from its traditional support for free trade, a credit crunch in the Chinese financial system and from geopolitics such as North Korea and the Middle East. However, as supports of MOTS would argue, none of these risks are particularly new and they failed to de-rail markets in 2017.

About 2017: last year was a good year for global stock markets, with the MSCI World index up 22.4% in U.S dollars, and 18.5% in local currency terms (with dividends reinvested). This was despite three interest rate hikes from the U.S Fed and unpredictable geo-politics. The FTSE 100 closed at a new all-time high, thanks to a rally in commodity-related stocks, while in the last few trading days of the year the S&P 500 tried and failed to beat its own all-time high reached on 12 December. European, Japanese and other Asian stock markets also enjoyed a good year, Hong Kong was the best performing developed stock market, with the Hang Seng up 36%. Tech was the dominant theme of the year, particularly in the U.S and on Chinese and other Asian stock markets. Higher commodity prices also helped.

Strong gains on Chinese stock markets helped drive the MSCI Emerging Market index up 37.3 in U.S dollars, 30.5% in local currency (with dividends reinvested). There was very little volatility on global stock markets last year, with no significant correction taking place. The S&P 500 recorded gains for each month, calculated on a total returns basis.

Meanwhile bonds did what they were supposed to do, with a dull and stable 7% coming from the Barclays Global Aggregate index of investment grade debt, as inflation remained relatively weak despite tightening labour markets in many developed economies. High yield returns were much higher, as the asset class continued to pull in new investors keen to maximise yields in generally low yielding world.
 
Near term active asset allocation: 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 but which is so hard to do in practice. The outline of a typical multi-asset portfolio is shown at the end of this note. However, any commentary on market conditions should acknowledge where sentiment lies regarding individual asset classes. The following paragraphs are offered as market commentary only, and are not intended as investment advice.

Japanese and emerging market stock markets appear to some commentators to offer most value, the U.S less so. The Japanese economy, which grew at annualised rate of 1.4% in the third quarter 2017 (despite a shrinking population), continues to benefit from a weak yen and the upturn in global demand for its exports. Fiscal reform, in particular, lower corporate tax rates for companies that increase wages by 3% or more, comes into effect in April. It is hoped that this will lead to improvements in household demand growth, which has been weak in recent years. Emerging market equities continue to look undervalued relative to their developed market peers on most valuation measures, despite their outperformance in 2017.

Wall Street is the most overvalued of the major stock markets, with the attractiveness of equities against bonds diminishing as Treasury yields creep up. However, the increase in yields is likely to be modest and U.S corporate earnings growth will remain strong, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors. Tax cuts will be a net benefit to U.S corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable. Fourth quarter earnings statements and outlook comments, from mid-January, will hopefully offer clues.

Once again, we begin the year with commentators generally nervous of bonds, fearing that an inflation problem is around the corner. Some fear that central banks will tighten monetary policy faster than is priced into the market in an accelerated effort to ‘normalise’ policy. It seems prudent to head such warnings, even while acknowledging that the fear of imminent inflation has been voiced by monetarist hawks – and proved wrong- ever since central bank’s policies of quantitative easing and ultra-low interest rates began nearly 10 years ago. This suggests favouring short duration core government bonds, since the cash can be re-invested in a few years in higher bond yields.

A multi-asset portfolio for the long term. 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
November 30, 2017

Investment Outlook
November 16, 2017

Investment Outlook
November 02, 2017

Investment Outlook
October 17, 2017

Investment Outlook
October 02, 2017

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