Royal London Asset Management’s Peter Rutter tells us how his team is thinking through the global economic uncertainties
Around the world, developed economies are reopening but there are many uncertainties about the timing, style and shape of economic recovery.
"How you manage a portfolio through that is as acute a challenge as I've experienced in 20 years running global equities," says Peter Rutter, RLAM's Head of Equities.
He says that understanding how the financial economy and risk buckets within global equities interact with the real economy - from step changes in digital acceleration to the tenfold increase in container rates on some international shipping routes - is where much of the team's energy is going. But he's not betting on one particular future.
"Our view is that at this juncture a wide range of outcomes is possible, from the Roaring Twenties to a much weaker recovery with bumps along the way," he says, pointing out that each has different implications for investment styles such as ‘value' and ‘growth'.
Roaring Twenties
"The Roaring Twenties scenario would mean a rip-roaring synchronised global recovery with stimulated fiscal policies and fairly accommodating monetary policies, and inflation proving sticky," says Rutter. "In that environment, rising rates and strong cash flows are likely and you might want to be in value and certain types of quality stock."
But his team are considering many alternative scenarios including a much more muted recovery if Covid evolves further and vaccines are less effective over time than people hope.
That less broad recovery, with bumps along the way, and no real rise in interest rates, would give leadership to a very different cohort of stocks and investment styles.
Pay day
"We're also intrigued by the Covid-19 bill: somebody has to pay, so do governments inflate, or tax, the bill away?" he asks. It could end up being a bit of both, but there are implications.
"If we inflated the bill away by running inflation at 3% for a period of time," says Rutter, "that would be more of a distortion on financial assets and the relative pricing of them. Alternatively, we could raise taxes to pay for the bill but that impacts the real economy and sectors that are more easily taxed: consumption, property, and physical domestic are sources of revenue."
Click here to read more from the RLAM Global Equities team about the implications of the economic uncertainty for different investment styles and how this might be mitigated
This article was funded by Royal London Asset Management.
For Professional Clients only, not suitable for Retail Clients. The views expressed are the contributor's own at the date of publication unless otherwise indicated, which are subject to change and are not investment advice.
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For Professional Clients only, not suitable for Retail Clients.
This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice.
The Royal London Global Equity Select Fund is a sub-fund of Royal London Equity Funds ICVC, an open-ended investment company with variable capital with segregated liability between sub-funds, incorporated in England and Wales under registered number IC000807. The Authorised Corporate Director (ACD) is Royal London Unit Trust Managers Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144037. For more information on the fund or the risks of investing, please refer to the Prospectus or Key Investor Information Document (KIID), available via the relevant Fund Information page on www.rlam.co.uk.
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