Asset allocator Trevor Greetham has said he is going against his investment clock model and is sticking with equities instead of investing in commodities.
Mr Greetham, director of asset allocation at Fidelity, said the investment clock model that directs his asset allocation places the economy in the “overheat phase” indicating that now is the time to buy commodities.
But Mr Greetham is not convinced growth can sustain this pace and he suspects the investment clock could swing back to the “recovery phase,” which is the ideal time for equities.
“The overheat phase of the cycle typically sees central banks hiking rates to cool an overly-rapid economic expansion,” he said.
“Rates should start to normalise in the next six months but we envisage a scenario in which global strength is driven by the US economy while structural weakness in China keeps commodity prices and global inflation under downward pressure.
“The Investment Clock could move back into the equity-friendly recovery phase. Consistent with this picture, we continue to prefer stocks to commodities.”
Because of this potential backward movement, Mr Greetham said he has raised allocations to equities while increasing his commodity underweight.
“The [commodity] asset class has not benefited from the cyclical pick up in China,” he said.
“Excess capacity and dollar strength remain powerful headwinds.”
The manager said his global growth scorecard showed the longest upswing since the data began in 1992.
He said the growth is being led by the US economy, which along with the UK is “experiencing a housing-led recovery with no immediate prospect of tightening”.
“The US housing market looks to be picking up again after weakness earlier in the year while activity is cooling off in the UK,” he said.
“Housing markets are generally good lead indicators for the economy in general.”
Mr Greetham is overweight in US equities. His largest sector overweight is healthcare, where he expects “the product pipeline to lead to gradual re-rating”.
Elsewhere, Mr Greetham remains underweight in European equities because of weak earnings and slowing growth.
He is also underweight in the UK, but this is because he believes “the recovery is best played through sterling”.
