UBS Investor Forum

Every month, we invite leading investment experts to challenge the UBS House View.

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Challenging the UBS House View

We invite global investment leaders from the fund management industry to challenge our UBS House View. We address global financial questions to make sure we never sin through over-confidence.

Short-Term Session

Every month, industry experts from all over the world join us to challenge our 6 to 12 months forecast for the markets.

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Long-Term Session

Twice a year, we hold a long term session with a 3 to 5 year outlook to discuss long term trends and investment themes with external market specialists.

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Podcast & charts

Listen to the latest podcast recorded at the Investor Forum and check out the charts of this month by market experts.

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Jump to the charts of the month

 

Short-term Investor Forum

Outside View

Coronavirus - The worst is behind us

Most participants felt that the worst of the pandemic was behind us, and that governments were not likely to implement complete lockdowns again. A few expect countries with greater economic openness and fewer sector dependencies, especially China and the US, to lead the economic recovery ahead of Europe and EM. LATAM is particularly vulnerable, and EM will be more broadly under pressure from the pandemic and oil. Other participants agreed that parts of Europe may lag, but that Germany and France may rebound strongly.

US presidential elections - Two candidates, two economic policies

The participants shared the consensus view that the US dollar would weaken. Although Democrats and the Republicans are both committed to additional monetary and fiscal support, the participants expect their policies to look very different. They agreed that with a democratic win the large corporate tax cuts implemented under the current administration would likely be reversed, a wealth tax would be become more likely, while spending by low-income households could increase on income tax cuts. However, if the current presidency were to continue, the participants expect policies to mirror the last four years. Overall, the speakers agreed that there was still much uncertainty around the US elections and that flexibility and diversification in the portfolio may be the best protection against volatility.

Equity - A preference for US markets

Most speakers consider macro and sentiment to be the biggest drivers in the equity market currently, as fundamentals and valuations are not attractive. They remain bullish on liquidity and prefer exposure to the US, especially large caps, although there may be potential in small caps for thematic investing. They are overweight in China and with low exposure in Europe and the UK, because quality companies tend to have a high premium. Another participant prefers to focus on quality and considers active management key in this volatile environment, and exposure to technology themes is a focus.

Credit - Aim for quality

In credit, participants recommend focusing on the sectors which have proven more insulated from this crisis, such as utilities, telecom and pharmaceuticals, which are attractive in terms of both fundamentals and valuations. They also noted that central banks are strongly backstopping the US and European credit markets. Another speaker remains constructive on credit, but has recently reduced the magnitude of their overweight position.

House View

Coronavirus

While news headlines can make us think the second-wave and election stories are the biggest drivers for markets, we believe it is the ongoing central bank monetary stimulus that will endure over the medium term. The second-wave and US election stories will create volatility as they influence investor perceptions of the speed and strength of the economic recovery. Against this backdrop, we think the most important thing an investor can do is to be invested, not sit on the sidelines. We also see value in the stocks of companies that should benefit from long-term secular trends, many of which will be accelerated by the COVID-19 pandemic.

US presidential elections

The US election story is likely to cause volatility leading up to the November vote as markets weigh the prospects of additional fiscal stimulus against the potential for higher taxes and increased regulation. With uncertainty high, we think it is important to stay invested but manage potential downside risks. Political uncertainty, specifically in relation to regulation and taxes, in addition to receding demand for safe-haven assets should also lead to a weakening of the dollar. We expect the major beneficiaries of a broad-based fall in the dollar to be sterling, the Swiss franc, and gold.

Equities

Equity markets have rebounded strongly since the March lows. After the rally, within equities, we recommend a more selective approach, favoring cheaper segments of the market, such as select value and cyclicals, and more defensive areas such healthcare and quality stocks. We also see an attractive risk-reward profile in more defensive stocks in two primary areas—healthcare stocks and quality stocks—which should hold up relatively well in any scenario.

Credit

In a lower-for-longer environment investors will need to search harder for yield. To that end, we recommend investors add credit opportunities such as US high yield, USD-denominated emerging market sovereign bonds, and Asia high yield to their portfolios.

What is the main risk investors should consider?

Poll Form

What is your 6 month forecast for the USD?

Poll Form
 

Charts of the month by leading market experts

Asymmetry in credit has improved vs. year end 2019 levels

Eve Tournier, Head of European Credit Portfolio Management at PIMCO

As of 1 June 2020. Historical levels considered starting from August 2000. OAS shown is versus treasuries Source: Bloomberg Barclays, ICE BofA Merrill Lynch, JP Morgan

Following the volatility in March and consequent technical pressure on the asset class, spread levels across credit asset classes have gone from the 20th percentile relative to their 20yr history at the start of the year to the c.75th percentile currently (implying they have been wider only 25% of the time). These levels imply the asymmetry in credit has improved, offering a compelling risk/return proposition for long-term oriented investors.

Benchmark: US IG is represented by the Bloomberg Barclays US Aggregate Credit Index, Euro IG is represented by the Bloomberg Barclays Euro Aggregate Credit Index,, US High Yield is represented by the ICE BofA ML US High Yield Index, Euro High Yield is represented by the ICE BofA ML Euro High Yield Index, EM External is represented by the JPM EMBIG Index and EM Corporates is represented by the JPM CEMBI Diversified Index

Please click here to read the disclaimer (1)

Prospective returns starting to look more compelling
 

Andrew Chorlton, Head of US Multi-Sector and Fixed Income Solutions at Schroders

Source: Bloomberg from April 1, 2018 to present and Bloomberg Barclays POINT prior to that date. Based on the Bloomberg Barclays US Corporate Index.

This chart illustrates the importance of price/spread level when investing in corporate bonds. It shows the 12-month excess returns (above duration equivalent Treasuries) of the US IG corporate index plotted against the entry level in spread terms going back to the early 1990s, using monthly data.

Put another way, it shows the return experience of credit investors who bought into the market at different spread levels. We can use this to highlight how often returns are negative when spread levels are tight, but also as an indication of the potential return at current levels based on the historical regression. As investors look to take advantage of the volatility and allocate to higher risk assets over time, investment grade corporates offer some upside from current levels particularly given the drag from anaemic cash rates.

Please click here to read the disclaimer (2)

European equities relative to US peers (in USD)

Luca Paolini, Chief Strategist at Pictet Asset Management

Source: Refinitiv Datastream, MSCI, IBES, Pictet Asset Management

The chart shows the relative performance of European equities to US equites, which is at a historical low, hence the question is whether an overdue revival will occur.

Please click here to read the disclaimer (2)

Recent Heightened Volatility Translates into Higher Option Premiums for Put Write

Anu Rajakumar, Multi-Asset Class Advisor at Neuberger Berman

Source: CBOE and Bloomberg

We believe a put write strategy can be an efficient way to monetize higher option premiums.

  • With the VIX Index near historically high levels, index option markets offer a unique source of equity index based returns. Elevated VIX futures suggests option markets are expecting relatively high levels of equity volatility to continue on into the 2020 election.
  • As a defensively positioned equity index strategy, the longer implied volatility levels, e.g. VIX, remain in an historically high range, the more insulated our strategies become from additional deterioration in underlying equity indexes. 
  • Collecting index option premiums, i.e. monetizing volatility, can be an attractive strategy to supplement portfolio cash flows without taking additional credit or duration risks.

Disclaimer for options:

Options and futures are not suitable for all investors, and trading in these instruments is considered risky and may be appropriate only for sophisticated investors. Prior to buying or selling an option, and for the complete risks relating to options, you must receive a copy of "The Characteristics and Risks of Standardized Options." You may read the document at http://www.optionsclearing.com/about/publications/character-risks.jsp or ask your financial advisor for a copy.

Please click here to read the disclaimer (3)

Please see the disclaimers for the charts
 

Listen to our latest Podcast here

Positioning for the recovery

Positioning for the recovery

06:15

This month, Mark Haefele, Chief Investment Officer at UBS GWM, is joined today by Lori Heinel, Deputy CIO at State Street Global Advisors, to discuss the outlook on the economic recovery after COVID-19.

Looking for related investment ideas?

Explore more podcasts

Visit the archive of past UBS Investor Forum podcasts for additional discussions.

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Long-Term Investor Forum

Debt and interest rates

UBS Investor Forum: Debt levels and Interest rates - long-term outlook

Kiran Ganesh, Head Investment Communications at UBS CIO GWM, Karen Ward, Chief Market Strategist for EMEA at JP Morgan AM, Jim Leaviss, CIO of Public Fixed Income at M&G

Debt interest rates

UBS Investor Forum: What is your long-term outlook for debt and interest rates?

22:15

We asked Karen Ward, Chief Market Strategist for EMEA at JP Morgan AM, and Jim Leaviss, CIO of Public Fixed Income at M&G, to debate the long-term outlook for debt and interest rates.

Outside View

  • Karen Ward, Chief Market Strategist for EMEA, JP Morgan AM, argued that much of the new debt will be held almost permanently by central banks rather than being repaid for the foreseeable future. Jim Leaviss, CIO of Public Fixed Income, M&G, agreed that much government debt would remain on central bank balance sheets

House View

  • The world will emerge from COVID with considerably higher levels of debt. While the precise fiscal spending picture is still unclear, we expect government debt as a percentage of GDP to be about 15-25 percentage points higher at the end of 2021 than it was at the end of 2019. Interest rates have little room to go lower, which limits the potential for high-quality bonds to provide significant positive returns in the event of an equity market downturn.
  • We expect governments and central banks to respond to higher debt through a combination of higher taxes, intensified financial repression, and moderately higher inflation. This will increase the importance of tax-efficient investment/divestment strategies. The reduced appeal of high quality bonds should encourage investors to seek alternative diversifiers, including private markets. Moderately higher inflation increases the attraction of inflation-linked securities.

"Does that higher debt promote a new wave of austerity? I think this answer today is 'no chance'."

Karen Ward, Chief Market Strategist for EMEA at JP Morgan Asset Management

"It is unlikely that we see a dramatic back up in yield. What we could see though is a significant increase in inflation. And for that reason, how can you protect your portfolio?"

Jim Leaviss, CIO of Public Fixed Income at M&G

Inflation

UBS Investor Forum: Inflation - long-term outlook

Kiran Ganesh, Head Investment Communications at UBS CIO GWM, Rick Rieder, Chief Investment Officer at Blackrock, Jim Leaviss, CIO of Public Fixed Income at M&G

UBS Investor Forum: What is your long-term outlook for inflation?

12:03

We asked Rick Rieder, Chief Investment Officer at Blackrock and Jim Leaviss, CIO of Public Fixed Income at M&G to discuss the outlook for inflation over coming years.

Outside View

  • Rick Rieder, Chief Investment Officer, Blackrock, argued that there were longer term structural forces keeping inflation subdued, including the larger relative size of services over manufacturing and the aging of the population. Jim Leaviss, CIO of Public Fixed Income, M&G, argued that these forces would be met with some upward pressure on inflation from policy preferences along with the shift away from globalization.

House View

  • While inflating away debt is not an appealing option for developed nations, central banks may be prepared to tolerate a rate of inflation somewhat above the 2% target rate for a year or two. Inflation between 2% and 5%, if not for too long, would likely not add to inflation uncertainty risk, and could help modestly reduce debt burdens. As with financial repression, inflation in this range can be regarded as a tax on conservative savers.
  • Moderately higher inflation increases the attraction of inflation-linked securities.

"If we see Globalization under threat - and we are for geopolitical reasons and the coronavirus - for me, that is the biggest risk to inflation going forward."

Rick Rieder, Chief Investment Officer at Blackrock

"It is unlikely that we see a dramatic back up in yield. What we could see though is a significant increase in inflation. And for that reason, how can you protect your portfolio?"

Jim Leaviss, CIO of Public Fixed Income at M&G

Globalization and income distribution

UBS Investor Forum: Globalization and income distribution - long-term outlook

Kiran Ganesh, Head Investment Communications at UBS CIO GWM, Prof. Hans-Joachim Voth, UBS Center for Economics in society, Huw van Steenis, Chair, Sustainable Finance and senior adviser to CEO

UBS Investor Forum: What is your outlook for globalization and income distribution in the coming years?

12:15

We asked Prof. Hans-Joachim Voth, UBS Center for Economics in society and Huw van Steenis, Chair, Sustainable Finance and senior adviser to CEO, to discuss their views on globalization.

Outside View

  • Prof. Hans-Joachim Voth, UBS Center for Economics in society, argued that deglobalization pressures were on the rise, with both governments and companies likely to seek more production closer to home. Huw van Steenis, Chair, Sustainable Finance and senior adviser to CEO, said that while certain aspects of globalization were likely to stall, technological and financial globalization would gather pace.

House View

  • We believe the world will be left structurally less global by the crisis, spurring on the de-globalization trend. Governments are likely to view more goods as being strategically important, and so encourage more domestic production. Meanwhile, companies have become more aware of the operational risks posed by long global supply chains. Bringing production closer to the end market is likely to become a more common response.
  • Shortening supply chains and bringing more production back to developed nations is likely to be positive development for companies focused on automation and robotics.

"There are lots of crosscurrent at play, and I am not going to say there isn't going to be a deglobalization of manufactured goods, but we shouldn't underestimate equally the potential of the acceleration of globalization with technology and financial flows."

Huw van Steenis, Chair, Sustainable Finance and senior adviser to CEO

"In terms of the investment implications of [deglobalization] I am not terribly optimistic. Any kind of shock that hits all countries pretty much at the same time is an arguments against moving money abroad."

Prof. Hans-Joachim Voth, UBS Center for Economics in society

Investment Trends

UBS Investor Forum: Investment trends - long-term outlook

Kiran Ganesh, Head Investment Communications at UBS CIO GWM, Scott Voss, Managing Director and Chair of the Firm’s Primary Investment Committee at Harbourvest

UBS Investor Forum: What macro trends and investment themes is the focus on?

05:28

We asked Scott Voss, Managing Director and Chair of the Firm’s Primary Investment Committee at Harbourvest to present the mega trends driving Harbourvest's investment framework and the investment themes the focus on.

Outside View

  • Scott and Harbourvest identified three main categories of opportunities across the innovation spectrum: Information Technology, Life Sciences, Frontier Technology

House View

  • Taking a longer-term view is not easy to do. New technologies, social phenomena, and environmental changes are quickly altering the world we live in, while fast-moving political news and market volatility distract us from forward-looking thinking.
  • To help navigate the uncertainty of the future, CIO has developed a range of investment themes based on three main secular trends: Population growth, aging, and urbanization all trends that are influenced by the potential disruptive developments in society, resources and technology.
  • Currently, investors can consider increasing exposure to beneficiaries of the long-term trends that have been boosted by the COVID-19 crisis, including companies exposed to Automation and Robotics, Digital Transformation, Fintech (PDF, 255 KB), E-commerce (PDF, 490 KB), HealthTech (PDF, 551 KB), and Genetic Therapies (PDF, 253 KB).

"The COVID situation has in some cases slowed some of the mega trends, or even reversed them, in some other cases it has accelerated them"

Scott Voss, Managing Director and Chair of the Firm’s Primary Investment Committee at Harbourvest

Recommended reading

Disclaimer

UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management business of UBS AG or its affiliates. The views and opinions expressed in this material by external guest speakers are those of the author/speaker and are not those of UBS, its subsidiaries or affiliate. Accordingly, UBS does not accept any liability over the content of this material or any claims, losses or damages arising from the use or reliance of all or any part thereof. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published for information purposes only. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com/cio-disclaimer.
 

 

Charts disclaimers

(1) Disclaimer: For Qualified Investor Use Only

For Qualified Investor Use only; qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended ("CISA") and its implementing ordinance.
This chart contains the current opinions of the manager and such opinions are subject to change without notice. This chart has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this chart may be reproduced in any form, or referred to in any other publication, without express written permission.

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(3) Disclaimer:

Index data sourced from CBOE and Bloomberg LP and is gross of fees unless stated otherwise. The portfolio composition, strategy, risks and fees and expenses, and accordingly the performance, of alternative products such as options strategies may differ significantly from other traditional asset class offerings, including equities and fixed income products. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
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INDEX DEFINITIONS:
The S&P 500 Index is a capitalization weighted index comprised of 500 stocks chosen for market size, liquidity and industry group representation. The S&P 500 Index is constructed to represent a broad range of industry segments in the U.S. economy. The S&P 500 focuses on the large-cap segment of the market with over 80% coverage of U.S. equities. Criteria for inclusion include financial stability (minimize turnover in the index), screening of common shares to eliminate closely held companies, and trading activity indicative of ample liquidity and efficient share pricing. Companies in merger, acquisition, leveraged buyouts, bankruptcy (Chapter 11 filing or any shareholder approval of recapitalization which changes a company’s debt-to-equity ratio), restructuring, or lack of representation in their representative industry groups are eliminated from the index.