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.
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.
Find out where we are on the clock right now by watching our latest update.
The multi asset funds that we manage are moderately overweight equities tilted towards the US Europe and Japan and away from emerging markets and Asia. We see some problems with the world economy. Growth has been slowing down but the outlook looks pretty good to us and we'd be willing to buy dips and build up a more positive equity exposure.
The investment clock model that guides asset allocation looks at what's happening in the global business cycle. Global growth has been slowing now for over a year but inflation is low in some places it's falling and central banks are already cutting interest rates.
That combination of an improving growth outlook and low inflation means we're in the equity friendly recovery part of the investment clock. That's a very different position to where we were a year ago. This time last year growth was slowing but inflation was rising. The US Federal Reserve was raising interest rates and it looked like we were in stagflationary situation in the opposite corner.
So we saw some big drops in stock markets last year. This year we wouldn't be surprised to see some volatility it's that time of year and we'd sight potential further setbacks in the trade dispute saw with Brexit or with the tensions in the Middle East. But we do think that bad news in the short term for the economy will be good news in the medium term for stock markets because if things get worse in the near term central banks will cut rates even further and that raises the prospects for a bit of a bounce back next year.
It's been a long economic cycle has been rolling on for 10 years now since the last recession; we've had about three of these mini cycles along the way lasting about three years each. We think we could be embarking on another upswing in this economic cycle could last even longer. So current positioning - moderately overweight equities looking to buy dips favouring the areas where we're seeing strongest earnings revisions so that's the US Europe and more recently Japan tilted towards the technology sector which is more economically sensitive away from consumer staples and positioned pretty close to neutral in terms of Sterling exposure with lots of uncertainties still surrounding Brexit outcomes and generally positive on the US dollar.
So quick version it's bad news out there but people used to say if it's in the papers it's in the price. We think there are better times to come and we're willing to buy dips.
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.