Global growth indicators have turned positive for the first time in 18 months while the direction of inflation also seems to be supportive of further growth, according to Royal London Asset Management’s Trevor Greetham, who remains overweight equities in his multi-asset portfolios.
The Royal London multi-asset head said his ‘Investment Clock’ – which guides its asset allocation decisions –remains in the ‘equity friendly Recovery phase’, which where stocks “tend to post their best returns”.
The Investment Clock
Source: Royal London Asset Management
“Our global growth scorecard is positive for the first time since May 2018, suggesting a pick-up in growth in early 2020,” he explained. “Industrial indicators are at a low ebb but lead indicators are rising and central banks are easing.”
Nevertheless, Greetham (pictured) – who oversees the asset manager’s Global Multi Asset Portfolios – said there is the chance of possible volatility given the “highly uncertain geopolitical situation”. 
However, this can lead to some buying opportunities.
“Stock market volatility tends to be high this time of year at the best of times, so we are likely to see dips in markets over the next few weeks,” the multi-asset specialist said. “Volatility can present opportunities for active investors as our analysis suggests markets almost always over-react to bad news in the short term.”
As such, the fund manager is moderately overweight and looking to buy any further dips, as “this time there may be more significant upside when the clouds lift”.
Equity exposure is currently tilted towards US, European and Japanese equities and away from the Asia-Pacific ex Japan, emerging markets and the UK. In the US, he multi-asset manager is overweight to the economically-sensitive technology sector and underweight consumer staples, which tend to underperform when bond yields are rising.
Greetham added that the Royal London multi-asset portfolios are primarily underweight in cash, and particularly sterling largely due to the Brexit uncertainties.
“Brexit is of course ongoing and providing a lot of risk around sterling,” he said. “We still don’t know whether Brexit will happen, we still don’t know if there’ll be a ‘No Deal’ exit.
“The pound could go in either direction. Our funds are slightly underweight sterling but we’re watching those developments very closely.”
Greetham added: “A chaotic ‘No Deal’ Brexit has the power to push the pound sharply lower and rattle global stock markets.
“Even an agreed deal could quickly usher in another period of uncertainty over the future trading relationship, given the shortness of the planned transition period.”
Brexit’s impact on sterling
Source: Royal London Asset Management
Other than Brexit, Greetham said there were two other geopolitical risks that could impact global markets but noted that all three could present an opportunity to buy stocks at lower prices as the world economy could get worse before it gets better.
The first was the ongoing US-China trade war and the potential for a US-Europe trade war. If rhetoric was “stepped-up” it could “easily damage sentiment,” according to Greetham.
“We do think that president Donald Trump is a bit of a ‘wild card’ to say the least. But, he’s up for re-election in 2020 and as a result we think that, probably if he gets a good interest cut out of the Federal Reserve this year he will be less of a disruption to markets next year,” he explained.
The third potential risk is the heightening of the Middle Eastern conflict, which could have a dominoes effect of catalysing the next US recession by hiking the oil price.
“A broadening Middle East conflict could impact investor sentiment negatively.
“Every US recession in the last fifty years was either caused by – or worsened by – a sustained rise in the oil price but markets have so far taken the production outage after the Saudi attacks in their stride.”
But this stock market “jitters” is expected according to Greetham who acknowledged that, in the short-term stock markets worry about this kind of “bad news”.
But he added that “we include a strategic allocation to commodities in our multi-asset funds to guard against geopolitical risks and have been adding exposure in this area lately.”
In addition, Greetham said that its global inflation scorecard continues to point downwards as oil prices failed to hold on to September gains and US pricing remains weak.
Since 2008 inflation has been persistently low according to Greetham and that has allowed central banks to “step in to prevent a mini-cycle downturn developing into full blown recession”.
This act of the central banks stepping in has been seen repeatedly over the past decade according to Greetham with 2012’s Euro crisis the ECB printing more money and 2015’s commodity price slump which was availed by “dramatic easing in China that turned things around,” stick out in Greetham’s mind.
“A lack of inflationary pressure means central banks can keep easing until growth recovers,” he added. “This is a huge improvement compared to the stagflationary backdrop this time last year when growth was slowing, inflation was rising and the Fed was hiking rates.”
Greetham concluded: “In 2019 we think widespread monetary ease will deliver relief,” Greetham said as central banks in developed and developing markets continue to cut rates or print money.
“If we are right, this business cycle has further to run and stocks should continue to outperform bonds over the next year to two.”
The Royal London Global Multi Asset Portfolio range is comprised of six actively managed, multi-asset funds primarily investing in Royal London funds using a risk-based approach.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The largest fund in the range, the £149.4m Royal London GMAP Balanced fund has made a total return of 11.19 per cent compared with a 15.74 per cent gain for the average IA Flexible Investment peer. The fund has an ongoing charges figure (OCF) of 0.60 per cent.