Investment Clock

ASSET ALLOCATION VIEWPOINT - MARCH 2010

Trevor Greetham joined Fidelity in January 2006 as Asset Allocation Director. In addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. Prior to joining Fidelity, he spent ten years at Merrill Lynch, where he was Director of Asset Allocation. Trevor began his career with UK life insurer Provident Mutual. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.

The Investment Clock approach generates growth and inflation readings based on past trends and the current momentum of lead indicators. These indicators are updated on a monthly basis to build an expectation of how the global economy may perform over the coming three to six months.

The growth reading sets the relative weighting of cyclical and defensive assets (North-South on the clock diagram). The inflation reading sets the weighting of financial assets versus real assets (East-West).

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HIGHLIGHTS

Macroeconomic conclusions

	The underpinnings of a sustained recovery are coming into place in the shape of falling unemployment rates and ample spare capacity.
	Recent market jitters probably signal a peak in lead indicators and a nervous mood is likely to persist for most of the year as moves to tighten policy raise fears of a misstep. Expect to hear more about the infamous double dips of the past.

Key asset allocation conclusions

	We’re going to see very strong growth in H1 and this could trigger a short term rally in stocks to new highs but stocks tend to underperform while lead indicators fall. Stocks usually underperform bonds between the peak and trough in the OECD lead indicator cycle.
	Trim pro-cyclical positions now with a view to putting them back on again later in the year.
	Would be risky to underweight equities with a sustained recovery underway.
	We could see decoupling along the lines of 2007/8 as strong demand boosts commodity prices despite stock price weakness. Energy exposure also offers a hedge against an increase in tensions over Iran’s nuclear ambitions.

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