Investment Clock model moves into the Recovery stage

The Investment Clock model has moved from Reflation into equity-friendly Recovery for the first time since early 2007, according to Trevor Greetham, manager of the Fidelity Multi Asset Strategic Fund.

"With increasing signs that an industrial recovery is taking root, the global growth lead indicators I follow have turned positive for the first time since 2005/06, says Mr Greetham.

"Big rises in US consumer confidence and the prospects of an industrial upswing could well lead to an earlier than expected peak in the unemployment rate. This would confirm a more sustainable recovery."

"Most economies are moving into deflation but inflation lead indicators are also showing some signs of life on the back of rising oil prices and upward revisions to economist forecasts. Whilst commodity prices could continue to rise, central banks are not likely to increase interest rates in the near to medium term, which is good news for risky assets."

"With a new Recovery phase under way, I'm now overweight equities in all of my multi-asset funds with a bias towards the emerging markets and Asia ex-Japan at the expense of the US and Europe." Greetham concludes. "I'm also overweight both property and financials for the first time since the first half of 2007. These sectors usually perform best while interest rates are falling, but the broken transmission mechanism of monetary policy has probably pushed their peak performance back to later into the cycle." An example of this could be seen in Japan in the 1990's where banks and property developers were hot cyclical sectors in the Recoveries.

"I have moved commodities up to neutral. I remain overweight bonds, but have my focus away from government bonds and into corporate bonds. I don't see any point in holding cash when returns are close to zero and I see opportunities to make money elsewhere. Overall, I think we're in for a period of short, vicious cycles. The good news is the next direction is up."

Fidelity's top quartile Multi Asset Strategic Fund is an ‘all terrain' fund that allocates to equities, bonds, commodities, property securities and cash. Mr Greetham alters the asset allocation relative to benchmark depending on where the global economy currently sits, makes judgments with reference to a quantitative ‘Investment Clock' model.