The Investment Clock

The Investment Clock is a tactical asset allocation model that Trevor Greetham, Head of Multi Asset at Royal London Asset Management (RLAM) uses to guide our tactical strategy for our Governed Range.

Latest Investment Clock update - September 2021


Trevor Greetham

The multi asset funds we manage are overweight commodities and global high yield and slightly overweight equities tilted towards the US and Europe, underweight in cash and also underweight in government bonds.

The world economy is enjoying a very strong period of growth as social distancing measures gradually come to an end. In the US we think we're already above the pre pandemic levels of activity and we're seeing strong recovery in the UK and Europe as social distancing eases. We think this will be bumpy. There'll be setbacks along the way. But we do think we're going to see strong growth heading into 2022.

The same time, inflation pressures have been building, and we've seen some very high inflation numbers in the US. So 5% consumer price inflation, for example, and the investment clock model that guides our asset allocation has now been in the overheat stage of the cycle for 10 consecutive months.

That means strong growth, rising inflation pressures, generally upward pressures on commodity prices, and upward pressure on interest rates, but what's been really notable is that, central banks haven't moved, they got very loose policy and so governments not tightening fiscal policy. And as a result, we think this period of strong growth will carry on, even though growth rates will start to come down and that makes us continue to be quite positive on commodities.

It makes us believe that we're going to see interest rates track higher again after awhile.
And if you look at our inflation scorecard, that features in the the way we position the red dot on the investment clock, you can see very strong inflation pressures coming through that.
Now we do know that the initial burst of inflation is quite transitory. The oil price, more than doubled. It won't do that, again, in my view, over the next year.
But we are expecting to see the labour market tightened significantly, particularly in America and wages rise.

I think, later in the summer, people will be more concerned about rising interest rates once more. And that's the reason why we're only very slightly overweight stocks, they've been doing well. They're at new highs and global indices. Earnings numbers, obviously, are very good, but we think that the fear of rising interest rates could cause some setback. And if you look at stock market seasonality between May and about November stock markets are usually flapped downwards on average, rather than strongly strongly outputs. So, instead were overweight. Global high yields were expecting to see a mountain of cash flow heading towards companies which makes it very unlikely we'll see a high level of defaults. And we also like the commodities regionally we're overweight.

The US market and the European market, they're seeing the best earnings revisions were underweight, emerging markets Then in terms of sectors were overweight. both technology but also less interest rate sensitive sectors like financials and energy and it's the defensive areas of the market, like consumer staples and utilities that were underway thing. So the broad picture, very strong growth, we've probably seen the best of the stock market returns already. So with scaling back expires, where a little bit that we think the strong grads will result in higher commodity prices and higher bond yields and that's why the overweight commodities Underweight Government bonds position, is the prime position in the funds at the moment.

How does the clock work?

The clock's horizontal axis, left to right measures inflation while its vertical axis indicates economic growth. In simple terms, the economic cycle moves through waves, from prosperity to decline, with central banks inflating or deflating monetary policy as a means of stabilising activity within the economy.

Investment Clock example

Source: Royal London Asset Management, for illustrative purposes only

Tracking the movement through each of the clock's quadrants: Reflation, Recovery, Overheat and Stagflation, can guide rotation across assets and sectors.

Investment Clock reports

news May 2021 (PDF)
An Inflationary Rebound

news February 2021 (PDF)
Vaccines and policy ease boost stocks

news January 2021 (PDF)
Storm before the Calm

news November 2020 (PDF)
Strategic asset allocation review

Investment Clock and the Governed Range

The Governed Portfolios and Governed Retirement Income Portfolios (GRIPs) are risk-targeted centralised investment propositions with a strong emphasis on investment governance. The tactical asset allocation of each of these portfolios is delegated to Trevor Greetham by the Investment Advisory Committee (IAC).

Our Investment Advisory Committee (IAC) meets every quarter to review our risk-graded Governed Range and fund range. Read the summary notes from their most recent meetings. 

The Investment Clock is just one of a range of tools that makes our tactical strategy more robust and more active based. It also brings an additional layer of expertise and strengthens the investment process of our Governed Range.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.