Trevor Greetham developed the “Investment Clock” concept while at Merrill Lynch. In 2006, he was appointed as Asset Allocation Director at Fidelity. He practised this investment clock as a strategy as a portfolio manager for Multi-Asset Strategic Fund.
But what is this investment clock concept about? Below is a depiction (taken from Fidelity website)
How it works?
Investment clock hinges on cycle investing, where it is believed that different asset class will outperform one another depending on the economic condition or cycle. For example, Hence, by allocating your capitals accordingly becomes a strategy to position yourself favorably for profits.
There are 4 key stages of economic cycle (as shown in the picture above):
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Stagflation – Growth has slowed and inflation remains high = Cash is king!
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Reflation – Interest rates lowered = bond price increase (due to inverse relationship)
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Recovery – Growth period = stocks!
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Overheat – Growth has peaked and Inflation high = commodities!
To look at it in a time based chart (picture from Fidelity, for illustration):
The red line indicates growth while the blue dotted line indicates inflation. Remember the stock market crash in 2008? The clock prompts you to sell and convert cash in 2007, get ready to buy bonds in 2008 and stocks in Mar 2009.
To use the clock, you just need to identify the stage of the cycle that we are in currently, and then position appropriately with the asset class for the next stage. Remember, there is a lag time for asset class to realised it’s value. This means that after you identify the current stage, you would need to buy assets from the next stage. By the time you wait for the next stage to come, it will be too late.
Does it work?
The Multi-Asset Strategic Fund ran by Greetham has not been performing. The fund has annual returns of 4.91% since 2007 (fund incepted in 2006). I believe it is due to the restrictions that he faced as a fund manager such that he is not able to exercise his concept fully. For example, mutual fund has to stay invested for a large percentage of the capital despite knowing that he has to mainly stay in cash as prompted by the clock that the market overheated in 2007-8 period. As stated by Fidelity, “The Tactical Asset Allocation has precise constraints and the guidance is for growth assets to be up to 100% of the fund (from 75% in the benchmark) while maintaining a minimum investment of no lower than 65%, and for defensive assets to arrive maximum to 35% (from 25% in the benchmark).” In addition, he may not be able to reap maximum profits from commodities, as commodities are derivatives and funds like this may not be able to participate. Hence, the result can be greatly affected. I would think his concept would perform better as a hedge fund.
What time is it?
This must be a question you have now. According to Greetham, we are actually in stagflation period (as opposed to the illustrative example above by Fidelity). Although stocks may have recovered to an extent, he thinks that we are actually not in the recovery period as the economic indicators have not shown that. He sees the growth is still declining and interest rates are falling too. It is hence still in a stagflation period. If he is right, he expects a double dip recession, meaning stocks will fall to a low again. For more details, see the latest update from him.
The concept is sound and it makes sense. I believe it does serve as a good guide for an investor to put the focus in the right sector or asset class at an appropriate time. What I mean is to use the clock for further investigative work. Example, if the clock is suggesting inflation is rising soon and you are going to look into commodities. But what commodities? Agricultural? Metals? Energy? You would need to examine further. The clock serves as a good guide at the macro level. The micro level has to be worked out by yourself. This is an example of a top-down approach to investing.
There’s another similar fund using the same concepts…Schroder Multi-Asset Revolution fund…
Hey Alvin,
Nice post! This week I just attended a workshop and that speaker talked about the professionals used models and charts to help him determine when and which securities to park their money. That is why they are always one step earlier in their entry than retail investors.