The Investment Clock model that guides our asset allocation decisions is in the equity-friendly ‘Recovery’ phase. As long as inflation pressures remain absent, central banks don’t even have to think about tightening policy. We expect rising commodity prices to push us into ‘Overheat’ phase at some point in 2013, but central banks are unlikely to tighten policy at the first sign of inflation. Investor sentiment is very positive leaving the markets vulnerable to negative shocks. However, with economic data improving and monetary policy set to remain loose, the risk/reward picture is skewed to the upside. Our multi-asset funds are overweight stocks, property and commodities and underweight bonds.
LEAD INDICATORS IN FOCUS
- The Investment Clock model is in disinflationary ‘Recovery’.
- Spare capacity is ample, commodity prices have lagged stocks and economists are generally downgrading their CPI forecasts.
- So far, our global inflation scorecard continues to point downwards.
- Our global growth scorecard turned positive in December for the first time since June 2012.
- The Recovery phase of the global economic cycle sees growth pick up with monetary policy remaining loose – a bullish combination for risk markets and stocks in particular.
CURRENT ASSET ALLOCATION POSITIONING
- We are significantly overweight equities. Our strongest conviction is an overweight in the emerging markets and an underweight in Europe.
- We are moderately overweight commodities as they should benefit as global growth strengthens.
- We maintain a deep underweight position in bonds. Government yields are artificially low and could rise as inflation and growth expectations rise. Within bonds we favour high yield and investment grade corporate bonds.
Trevor Greetham joined Fidelity in January 2006. He is Director of Asset Allocation and in addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. Prior to joining Fidelity, he spent ten years at Merrill Lynch, where he was Director of Asset Allocation. Trevor began his career with UK life insurer Provident Mutual. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.
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