The UBS House View Monthly presents the latest version of the UBS Investment House View, assessing the impact of current economic trends on asset classes and portfolio allocation.
Drive for show and putt for dough?
The old golf adage goes that you “drive for show, and putt for dough,” suggesting that accuracy is more important than distance in golfing success. Columbia University Professor Mark Broadie had a different take. He crunched the numbers and found that distance in fact explains the majority of success.
We think that going the distance is the most important skill in investing too. The composition of your strategic asset allocation should explain around 80% of your long-term returns. But while most investors would probably agree with this, it can be hard to take the long view when what lies ahead is so unclear.
In this letter, I update on our latest positioning, before looking at what we will be monitoring in the months ahead to help us gain more visibility on the longer-term prospects for asset markets.
2018 started strong. Corporate earnings growth is robust, and has been further boosted by US tax cuts: we project 8–12% profit growth for global equities this year. Global growth looks set to accelerate to 3.9% from 3.8% last year. And, relative to a month ago, tail risks have diminished: North Korea appears to be adopting a more conciliatory diplomatic stance with the South, and tensions between Saudi Arabia and Iran have eased.
Against this supportive backdrop, we modestly increase our overweight position
in global equities, although, after a strong run, many investors may not need to actively buy stocks. Investors that participated in the recent rally may have automatically increased the size of their overweight position in equities.
We also add an overweight position in emerging market equities, relative to Australian equities. Emerging market stocks are relative value plays, and should provide investors with exposure to a strong global economy. Finally, we see the current environment as one in which investors can afford to engage in more active intra-market trades. We therefore double the size of our existing currency positions – overweight CADUSD, overweight SEKNOK, and overweight in our basket of select emerging market currencies.
Global Chief Investment Officer Wealth Management
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