Tactical change – 8 February 2018

12 February 2018
Trevor Greetham, Head of Multi Asset at Royal London Asset Management, has made a tactical change to the asset allocation of the Governed Portfolios (GPs) and Governed Retirement Income Portfolios (GRIPs).

What’s changing?

“We are adding to our moderate overweight position in equities on market weakness, buying stocks in the emerging markets in particular, and deepening the underweight in government bonds. We have also taken this opportunity to move commodities further overweight.

The Investment Clock model that guides our asset allocation has moved into the Overheat phase of the global business cycle characterised by strong growth and rising inflation. Commodities are usually the best performer at this time as higher than average demand depletes inventories and bids up prices. Bonds usually suffer on inflation worries.

Stocks can do reasonably well at this stage of the cycle but volatility often picks up as there is a two way pull - strong earnings growth is good news as we saw in January, but interest rate hikes can cause valuations to drop, as we have seen in February.

We went into the sell off only moderately overweight equities, holding back from a larger position on valuation grounds. Investor sentiment has swung rapidly from excessively bullish to excessively bearish.

Our composite sentiment indicator is now at levels last seen during the China devaluation panic of summer 2015. Leveraged investors have been forced to sell equities in greater quantities as the price has dropped. As long term investors we can take advantage of the rout to add to equity positions.

We have added to commodities and the emerging markets as we expect the current period of strong global growth to persist.

We expect stocks to remain volatile for the next few weeks, depending on the run of inflation data in the US, and there could be some more scary moments. However, we are buying dips as we don’t expect markets to peak out until the current expansion in the world economy comes to an end. With US interest rates below the rate of inflation and the two largest non-US central banks still printing money it’s hard to argue monetary policy is tight enough for that to happen just yet.”

Trevor Greetham, Royal London Asset Management 

Keep up to date with Trevor’s latest views

You can access up to date views from Trevor on the market and the movements of the Investment Clock on our Latest Investment Clock updates page.

Latest tactical positions

High Yield    
Index Linked    
Corporate Bonds    
Absolute Return Strategies (including cash)    

Directions of arrows show overall change from previous tactical change. For individual portfolio changes, please see factsheets.


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