Investment Clock insights

Current multi asset positioning: Still Overweight Stocks


Trevor Greetham

20 December 2019

We bought equities in our multi asset funds from a neutral position during the panics in Q4 2018, starting 2019 with a significant overweight. Stocks rallied sharply as the Investment Clock swung around from Stagflation into Reflation and then Recovery as US interest rate cuts started to take effect. We managed our equity exposure actively during the year, taking profits after strong rallies and adding back again during dips, leaving us with a large overweight.

Source: Refinitiv Datastream as at 13/12/2019

Source: RLAM for illustrative purposes only 
Volatility centred on the US-China trade war, Brexit and a grinding slowdown in industrial activity which only now looks to be perking up again. The interest rate sensitive US housing market has been strengthening all year, however, and we expect this decade-long economic expansion to extend for at least another year or two. While some seemed to be hoping for a market crash we have seen quite the reverse, with the S&P 500 index on course to post its second strongest year in the last two decades. 
We start 2020 positive on equities. An improvement in growth should boost earnings expectations, markets aren’t massively expensive and interest rates are likely to stay low. There’s also a chance that President Trump takes a more conciliatory tone on trade in order to boost the US economy and stock market ahead of the November 2020 elections, though we wouldn’t be surprised to see further short-term volatility during the year.
At home, the General Election resolved the Brexit impasse with the UK now set to leave the European Union early in 2020. While we expect a relatively Hard Brexit to damage medium term growth prospects, the markets are likely to start the year focused on the prospects for fiscal stimulus in Prime Minister Johnson’s budget in February/March. We covered most of our long-standing UK equity underweight just before the election and moved slightly overweight the pound.
Equities: Significant overweight with the Investment Clock in equity-friendly Recovery
Bonds: Maintaining consistent overweight in short duration global high yield but significantly underweight government bonds
Commodities: Broadly neutral with the structural slowdown in China unsupportive
Regions: Overweight US and Japan, which tends to benefit from improving global growth; Underweight Pacific Basin, still suffering from Hong Kong protests. 
Sectors: Overweight growth-sensitive US Tech and Consumer Discretionary; Underweight Industrials and bond-sensitive Staples. 
Currency: Overweight US dollar, Canadian dollar and sterling; underweight euro and swiss franc

Source: RLAM for illustrative purposes only 

Volatility centred on the US-China trade war, Brexit and a grinding slowdown in industrial activity which only now looks to be perking up again. The interest rate sensitive US housing market has been strengthening all year, however, and we expect this decade-long economic expansion to extend for at least another year or two. While some seemed to be hoping for a market crash we have seen quite the reverse, with the S&P 500 index on course to post its second strongest year in the last two decades. 

We start 2020 positive on equities. An improvement in growth should boost earnings expectations, markets aren’t massively expensive and interest rates are likely to stay low. There’s also a chance that President Trump takes a more conciliatory tone on trade in order to boost the US economy and stock market ahead of the November 2020 elections, though we wouldn’t be surprised to see further short-term volatility during the year.

At home, the General Election resolved the Brexit impasse with the UK now set to leave the European Union early in 2020. While we expect a relatively Hard Brexit to damage medium term growth prospects, the markets are likely to start the year focused on the prospects for fiscal stimulus in Prime Minister Johnson’s budget in February/March. We covered most of our long-standing UK equity underweight just before the election and moved slightly overweight the pound.

Equities: Significant overweight with the Investment Clock in equity-friendly Recovery

Bonds: Maintaining consistent overweight in short duration global high yield but significantly underweight government bonds

Commodities: Broadly neutral with the structural slowdown in China unsupportive• Regions: Overweight US and Japan, which tends to benefit from improving global growth; Underweight Pacific Basin, still suffering from Hong Kong protests. 

Sectors: Overweight growth-sensitive US Tech and Consumer Discretionary; Underweight Industrials and bond-sensitive Staples. 

Currency: Overweight US dollar, Canadian dollar and sterling; underweight euro and swiss franc

Source: RLAM as at December 2019. For illustrative purposes only. Weightings may vary according to tactical asset allocation and the Fund may invest outside of indicated asset classes as the manager sees fit.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.