Posted on

December 2019  

The stock markets remain buoyant with the 3 main US markets – S&P 500,  Dow Jones Industrial Average and the technology focused NASDAQ index at all-time-highs. Europe too, although not showing any signs of real economic growth, is at a 4-year high. The UK markets are well below historic highs due to Brexit fears.

I would allocate the majority, circa 95%, of my investment into global equities since

  • bonds offer such low returns with a third of the world’s government bonds offering negative yield-to-maturity /rates of return and all 10-year government yields well below 2%
  • there is less concern about global economic growth than 6 months ago and it looks like the US/China trade dispute will get resolved.

Which equity markets would I buy?

I would put the majority e.g. 70% or $700,000 into US equities since

  • the US economy is the fastest growing Western economy showing 2% annual GDP growth rates
  • the US dollar has core underlying strength given the key Fed Funds interest rate (although cut by 3 x 0.25% this year) is still high compared to other economies and so will support the USD.

I would split my US equity investment equally into 3 sectors

    • Banks e.g. Bank of America Merrill Lynch – benefiting from continued banking deregulation by Donald Trump
    • Technology stocks especially the FAANG stocks – Facebook, Apple, Amazon, Netflix, Google as such stocks remain ‘game changers’.
    • Utility Companies i.e. Gas & Electricity companies as they offer 2.5% dividend yields (no capital growth prospects) and this provides balance to the portfolio.Such stocks are like ‘bond substitutes’ but higher yielding, so no need to buy bonds outright.

Of the remaining $300,000 /30% portfolio investment I would put 25% across Asia which is predicted to grow at 5.5% this year  and remains the world’s most dynamic by a considerable margin. I would not put more because I want USD as my core portfolio currency and I would not invest in Europe with equities at a 4-year high with no signs of real economic growth, so they are fully valued.

The remaining 5% I would put into gold as a hedge should US/China trade talks collapse or in case there are other shocks to the global financial system. Gold at $1,450 is well below its $1,900 all-time-high.