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Royal London’s Greetham: This bull market has another year or two to run

20 November 2017

Multi-asset specialist Trevor Greetham explains why the equity bull market could run for longer than many investors and market watchers expect.

By Rob Langston,

News editor, FE Trustnet

The eight-year equity bull market could run for up to two more years, according to Royal London Asset Management’s Trevor Greetham (pictured).

Greetham, who is head of multi-asset at Royal London Asset Management and oversees its multi-asset Global Multi Asset Portfolios (GMAP) range, said he remained overweight equities given the current market conditions.

Concerns over valuations have been raised by some investors more recently as markets have continued to climb higher several challenges.

Indeed, the MSCI World index has risen by 10.57 per cent during 2017 after recording a 28.24 per cent gain in 2016 (in sterling terms).

However, Greetham said the longevity of a bull market was not a particularly good indicator of how much further it had to rise.

Performance of index YTD

 

Source: FE Analytics

He said: “If you look at stock markets they’ve been rising now for eight years since the financial crisis, but bull markets don’t die of old age.

“The usual signs that suggest we’re late in the cycle – excessive stock market valuations, excessive leverage in the banking system or sharply rising inflation – just aren’t with us at the moment.”

As such, Greetham said he retains overweight positions in equities across the GMAP range as warning signs signalling the end of the bull market have yet to emerge.

The multi-asset veteran said that markets are still in the early-mid market cycle, with a number of positive indicators.

“Although growth is pretty good around the world, unemployment rates are generally falling, inflation is still low and outside of the UK, inflation is starting to fall a little bit,” he explained.

“What that means is because of the strong growth, companies are reporting good earnings numbers and that is supporting the stock market.”

However, because of low inflation, Greetham said central banks are still operating very loose monetary policy.



The fund manager noted that markets believed the Bank of England’s recent rate hike was believed to be a case of “one and done”, while Europe and Japan were persisting with quantitative easing measures.

“It’s really only America where interest rates are starting to rise and even there it’s happening very slowly and very gradually because inflation is not currently a problem,” added Greetham.

“Inflation could start to rise in the next year or two: we’re watching very closely things like commodity prices or wages.

“But so far this bull market looks like it’s going to run for another year or two.”

Greetham’s investment clock

 

Source: Royal London Asset Management

Indeed, Greetham’s Investment Clock is currently positioned for the recovery phase of the market cycle

As such, Greetham has maintained his overweight position in equities and kept neutral positions in the property and commodities and an underweight to the fixed income space.

Greetham said he has taken a cautious stance towards the fixed income space, noting the recent return to interest rate hikes by some central banks.

In terms of equities, Greetham’s preferred market is Japan and it’s least favourite is the UK.

“Earnings strength in the UK has not been good in recent years, partly because of the high commodity exposure in the FTSE 100,” he explained.

Another note of caution for the UK centres on Brexit and what the impact it might have on the domestic economy.

“There’s so much uncertainty about whether we stay in the single market or leave with no deal whatsoever: sterling could go either way,” he said.

“That’s impacting corporate investment decisions and the economy is actually pretty soft at the moment.”

Greetham is much more bullish about the outlook for Japanese stocks, which have been buoyed by strong fundamental data.


Unlike the UK, Japan has been backed by strong support from the central bank an improving economic outlook.

Shinzo Abe’s recent re-election win also provided a further mandate for the Japanese prime minister and his eponymous Abenomics economic reforms.

“Japan is a different story,” he said. “In Japan, you have a very strong economy: unemployment has been falling sharply, inflation is very low and you have a central bank that is printing money and actually targeting bond yields of zero.

“In other words: every time interest rates look like they’re going to rise, they print more money.

“That means, generally speaking, you have a good stock market, it’s now at a 26-year high but you’ve got very loose policy.”

However, while Greetham remains positive on the outlook for Japanese stocks he remains less bullish about the currency, where he remains underweight.

He said the more aggressive quantitative easing policy by the Bank of Japan is generally bad for the yen.

 

The Royal London GMAP range was launched in 2016 and includes six funds covering different investor risk profiles.

The funds invest in low cost tracker funds and aim to offer attractive returns in excess of inflation over the medium-to-long term.

The £40.6m Royal London GMAP Dynamic fund, which is the highest risk fund and is located in the IA Global sector, has a 7.4 per cent exposure to Japan, the highest allocation in the range.

However, it also has a 46.5 per cent exposure to UK equities, although roughly half of this is held in a FTSE 350 tracker fund giving it exposure to the higher growth small- and mid-cap space.

Performance of fund vs sector YTD

 

Source: FE Analytics

So far this year, the fund has returned 9.93 per cent compared with a 12.46 per cent gain for the average IA Global sector fund, as the below chart above.

Royal London GMAP Dynamic has an ongoing charges figure (OCF) of 0.59 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.