The Investment Clock

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

What is the Investment Clock?

The economic cycle moves through waves, with varying levels of growth combined with differing levels of inflation. Different investment asset classes perform better at different stages of the economic cycle.

The Investment Clock is a framework for understanding which stage of the business and economic cycle we’re in and where the economy is heading in terms of growth and inflation, and then relating that to the performance of different investment assets. It’s a product of 20 years of research, aiming to maximise exposure to investments which perform well at different stages of the economic cycle.

This diagram shows which asset classes and sectors tend to do best at each stage of the global economic cycle, based on more than four decades of historical data.

Source: Royal London Asset Management. For illustrative purposes only.

Watch our video to find out more about the Investment Clock.

The investment clock is a way of linking the performance of different investments to the global business cycle. We think about it in terms of a clock face, and where you are on that clock is determined by what's happening to global growth and global inflation.

For example, when you have a disinflationary slowdown, so weak growth and falling inflation, government bonds tend to do very well, because interest rates are cut by central banks, inflation expectations are dropping and all of these things boost the bond markets.

When interest rate cuts take effect, and you get an economic recovery, if it's still disinflationary, that's the best of all possible environments for stocks. Because when you've got a disinflationary recovery, you've got loose policy, interest rates are still low, but companies are suddenly making profits and share prices go up.

When growth is strong for too long, you've got an overheat. So what happens there is inflation starts to rise as commodity prices are going up, and there's too much money chasing too few goods. Central banks then start to raise interest rates, to try to reign in that inflation. And in that stage of the business cycle, the overheat commodities tend to be the best investment.

And then finally, of the four different stages of the business cycle, we have stagflation. Now stagflation is a slowdown, but, with inflation still high or rising. In stagflation, you've got an economic slowdown, the prospect of weaker profit growth from companies that Central Banks maybe raising interest rates and that combination tends to be pretty bad for stock markets.

Multi asset quarterly update webinar - January 2024

In this webinar, Trevor Greetham, Head of Multi Asset at Royal London Asset Management, discusses market activity over the past year, illustrates our current positioning on the investment clock, and provides an outlook for 2024.