Investment Clock insights

Current multi asset positioning


Nersen Pillay

2 October 2018

We have seen a year in which US equities are strongly up, Japan is also in positive territory but European equities have fallen while emerging markets have been very weak. As we enter the last quarter of the year, our Investment Clock is pointing to mild “stagflation”:  there is growth globally but more signs of inflation. While global growth is soggier than it was at the start of the year, it is still positive and we do not see a US recession in the next year; and global inflation is showing more signs of life but remains at relatively low levels, after a long period of being dormant.  The environment is therefore one which has changed through the year but is still supported by growth globally while interest rates are not expected to rise sharply in any major economy. But, interest rates are rising, led by the USA, and we are seeing a stronger US dollar.

Source: RLAM September 2018. For illustrative purposes only 

We remain slightly overweight equities as global growth is still positive and not significantly challenged by only relatively small interest rate increases expected.  We retain an overweight position in short duration high yield bonds and stay neutral in property. Commodities have been moved to a small underweight position as they do best when the clock is in its “overheat” phase when growth and inflation are both stronger; they also do not benefit from a stronger US dollar. We continue to be underweight fixed income given UK and US interest rates are rising gradually.  In terms of equity regions, we remain overweight the USA, because of its strong growth relative to other areas, and Japan, which benefits from a stronger US dollar with its successful export sector.  We moved underweight emerging markets earlier in the year because it suffers when the US currency is strong (given debt held in dollars) and soggier global growth. We remain underweight the UK, given Brexit uncertainty, and  Europe, given renewed eurozone concerns driven by uncertainty surrounding Italian fiscal policy and weaker growth than the USA. 

 

 

 

 

 

 

 

 

 

 

 

 

Weightings may vary according to tactical asset allocation and the Fund may invest outside of indicated asset classes as the manager sees fit. Source: RLAM. Tactical positions as at October 2018

Past performance is no guide to the future. 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.