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The Investment Clock
The Investment Clock
Royal London Asset Management’s Investment Clock is a model used by our Multi Asset team as a way to relate the performance of financial markets to the business cycle. The concept of using a Clock to illustrate the cyclical nature of the economy with various investments positioned where they tend to perform best can be traced back many decades. Head of Multi Asset, Trevor Greetham, started research in the 1990s that led to the comprehensive approach we use today, with trends in economic growth and inflation used to ‘tell the time’.
The premise of the Clock is that the economy moves through waves, from prosperity to decline, with central banks lowering or raising interest rates as a means of getting the economy back on track. In the stylised business cycle, inflation lags the growth cycle, picking up some time after growth recovers and rising for some time after it peaks.
The strength of growth and direction of inflation define the four distinct phases of the Investment Clock, with each favouring a particular set of investments. The diagram sums up which asset classes and sectors tend to do best at each stage of the cycle on the basis of more than four decades of historical data.
Investment Clock position
Select a month to see the Investment Clock reading based on global growth and inflation indicators at that time. The trail shows readings over the preceding 12-month period.
Use the arrows to adjust the 12-month period
Drag to adjust the 12-month period
Source: Royal London Asset Management as at September 2026. For illustrative purposes only. The views expressed are the author's own and do not constitute investment advice. The Investment Clock is updated by the Multi Asset team on a regular basis. Monthly readings shown on the clock face are based on a large number of growth and inflation indicators from around the world.
While this approach helps the Multi Asset team to understand the macro drivers of the markets, it is not the only input to their investment process. History often repeats itself in broad terms but there are unique aspects to every economic cycle as highlighted in the team's market commentary.
Commentary - September 2026
Middle East conflict continues into the US midterms
The geopolitical backdrop remains highly uncertain, with energy supplies through the Strait still disrupted. Commodity prices have risen over the summer, with oil prices trading close to $100 a barrel again.
Against this backdrop, the Investment Clock remains in Stagflation. While recent activity data has surprised mostly on the upside and continues to paint a broadly resilient picture, elevated energy prices are creating uncertainty and central bank policy tightening is expected.
AI rally could end up as a 1990s-style tech bubble
The AI boom is raising corporate earnings of AI stocks. Cycle-adjusted valuations are near dot com era levels. New innovation waves often get overblown in financial markets, even when their long-term impact is transformative.
Strategically, we are tilted away from US equities on valuation grounds towards the better-value UK market. Tactically, we prefer the earnings boom beneficiaries – US, Japan and emerging market equities. A series of Fed rate hikes could derail the positive equity story, but that does not appear to be an imminent risk.
The views expressed are the author's own and do not constitute investment advice.
Source: Royal London Asset Management as at September 2026.
Philosophy
Asset class rotation and the economic cycle
The wave diagram below illustrates how growth and inflation cycles tend to interact. The solid line represents growth relative to its long run trend – a boom/bust cycle. Economists refer to the gap between the growth wave and the horizontal trend line as the ‘output gap’. When growth is below potential, spare capacity and weak labour markets trend to drag inflation lower. When growth has recovered to the extent that the economy is operating above potential, shortages and tight labour markets tend to push inflation higher. It is the role of central banks in a modern market economy to step in, either to cut or raise interest rates, to get growth and inflation back on track.
Explaining the link between financial markets and the cycle
Since growth and inflation are two different cycles, this creates four different stages of the business cycle. The Investment Clock recognises the link between financial markets and the global economic cycle, capturing the fact that different asset classes and sectors typically offer their best performance at specific times:
- ‘Reflation’ is defined by weak growth and falling inflation. Central banks cut rates and government bonds tend to perform well;
- ‘Recovery’ starts when monetary stimulus takes effect. Economic growth and corporate profits rebound, but spare capacity keeps inflation low and monetary policy loose. Stocks are likely to outperform;
- In ‘Overheat’, growth is strong and inflation is rising. This environment usually sees central banks hike rates. Commodities usually offer strong returns;
- ‘Stagflation’ is when growth slows but inflation continues to rise. It’s a time to be defensive, with cash typically offering better returns than either stocks or bonds. Commodities often continue to perform well at these times (because stagflation is often caused by oil price shocks).
Historical evidence to support the Investment Clock approach
The positioning of different asset classes and sectors on the Investment Clock diagram is rooted in historical analysis. While it is difficult to know in real time that we are at a peak or a trough in the growth and inflation cycles, with the benefit of hindsight these turning points are clear. The table below shows the annualised real returns generated by the four main asset classes in each Investment Clock phase since 1973.
Real asset class returns in historic Investment Clock phases (%)
| Label | Growth | Inflation | Bonds | Stocks | Commodities | Cash |
|---|---|---|---|---|---|---|
| REFLATION | Falling | Falling | 7.8 | -1.6 | -30.0 | 2.5 |
| RECOVERY | Rising | Falling | 4.1 | 18.2 | -7.5 | 1.1 |
| OVERHEAT | Rising | Rising | -0.4 | 8.9 | 17.6 | -0.2 |
| STAGFLATION | Falling | Rising | -2.7 | -14.3 | 37.1 | -1.1 |
| AVERAGE | 2.1 | 7.2 | 1.8 | 0.6 |
Historic asset class real returns through business cycles.
Past performance is not a guarantee or reliable indicator of future returns.
Source: Refinitiv DataStream and Royal London Asset Management, as at 31 December 2025. For illustrative purposes only. Figures show average annualised real returns for asset classes within each Investment Clock phase, based on Royal London Asset Management analysis of business cycles from April 1973 to December 2025.
Multi asset fund range
Investment risks
The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.
Counterparty risk
The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
Credit risk
Should the issuer of a fixed income security become unable to make income or capital payments, or their rating is downgraded, the value of that investment will fall. Fixed income securities that have a lower credit rating can pay a higher level of income and have an increased risk of default.
Derivative risk
This fund may undertake transactions in derivatives and forward transactions (both on exchange and over the counter (OTC)). These may include interest rate swaps and interest rate futures for the purposes of meeting the investment objective, protecting the risk to capital, duration and credit management, as well as for hedging. While the discerning use of derivatives can be beneficial, derivatives also involve specific risks. These risks relate specifically to market risk, management risk, credit risk, liquidity risk, the risk of mispricing or improper valuation of derivatives and the risk that derivatives may not correlate perfectly with underlying assets, interest rates and indices. The use of derivative instruments may from time to time alter the economic exposure of the fund causing it to deviate significantly from the performance of the market as a whole. The use of these derivatives will be within the parameters allowed for linked funds by the Financial Conduct Authority and Prudential Regulation Authority.
Emerging markets risk
Investing in Emerging Markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse effect of social, political and economic instability, weak supervisory structures and accounting standards.
EPM techniques risk
The Fund may engage in Efficient Portfolio Management (EPM) techniques, including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may expose the Fund to increased price volatility.
Exchange rate risk
Investing in assets denominated in a currency other than the base currency of the Fund means the value of the investment can be affected by changes in exchange rates.
Fund investing in funds risk
The Fund is valued using the latest available price for each underlying investment, however it may not fully reflect changing stockmarket conditions and the Fund may apply a ‘fair value price’ to all or part of its portfolio to mitigate this risk. In extreme liquidity conditions, redemptions in the underlying investments, and/or the Fund itself, may be deferred or suspended.
Interest rate risk
Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital. Unlike the income from a single fixed interest security, the level of income (yield) from a fund is not fixed and may go up and down. Bond yields (and as a consequence bond prices) are determined by market perception as to the appropriate level of yields given the economic background.
Liquidity risk
In difficult market conditions the value of certain fund investments may be difficult to value and harder to sell, or sell at a fair price, resulting in unpredictable falls in the value of your holding.
Liquidity and Dealing Risk (GMAP funds)
The fund invests indirectly in assets that may at times be difficult to value, harder to sell, or sell at a fair price. This means that there may be occasions when you experience a delay in being able to deal in the fund, or receive less than may otherwise be expected when selling your investment.
