Trevor Greetham's Investment Clock July: Bond re-pricing overdue

Our global growth scorecard is in its longest upswing since the series began in 1992 but the inflation scorecard is turning positive, raising the risk that bond yields rise in anticipation of tighter monetary policy.

We have added to equities and reduced the size of commodities and emerging market underweights to reflect the improved growth picture.
We have also sold bonds, property and interest rate-sensitive equity sectors to ensure we are sufficiently underweight in each area.

LEAD INDICATORS IN FOCUS

Growth

Our growth scorecard rose this month, driven by improvements in Japanese consensus GDP forecasts and UK leading indicators.

The Chinese residential construction sector remains weak but other data releases point to a cyclical pick-up related to the mini-stimulus earlier in the year.

Inflation

Inflationary developments are worth watching closely with some measures of core inflation in the US rising sharply recently.

CURRENT ASSET ALLOCATION POSITIONING

We raised our allocation this month to equities on signs of more synchronised global growth and in order to fund a new property underweight.

We remain underweight commodities. Excess capacity, US dollar strength and slower growth in China are headwinds.

We deepened our underweight in bonds. US yields are at the low end of the range and we expect poor returns as central banks normalise policy.

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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