Get some perspective on volatility

While it’s impossible to forecast every market development, it’s important to “to get the big things right.” With the U.S. economic cycle maturing, central banks increasing borrowing costs and geopolitical risks threatening growth, many are thinking the next “big thing” is to time a market sell-off, which UBS doesn’t recommend.

Staying invested and having a plan in place are what work best in the long term. More specifically, there are five “big things” UBS believes you should consider when investing in a more volatile environment.

Looking beyond passive approaches

During periods of monetary policy uncertainty, equities and bonds can rise and fall together, making traditional portfolios less diversified and therefore riskier.

Global stocks fell as much as 9% starting in late January, while bonds also fell 1%

  • Hedge funds have historically outperformed during periods of rising U.S. interest rates
  • Smart beta strategies are less correlated to broad market moves

Building in downside protection

With volatility increasing, it’s important to protect your portfolio from large market declines.

2018 has seen 10 days with >1% drawdown, compared to just 2 in all of 2017

  • Put options on the S&P 500 can help protect portfolios against large equity market falls
  • U.S. government bonds have provided positive returns in 96% of all stock market losses since 1926

Improving credit quality

Many investors may now be exposed to riskier companies after chasing yields while interest rates remained low.

U.S. 10-year Treasury yields are now around 3%

  • UBS is overweight U.S. 10-year Treasuries as rising yields now make them an effective substitute for riskier high-yield credit

Diversifying concentrated holdings

A globally diversified portfolio can reduce exposure to specific local or regional risks around the world.

Since the start of 2018, the MSCI AC World Index has seen 40% fewer daily moves of greater than 1% than the S&P 500

  • UBS recommends an overweight to global equities instead of concentrating on just one region

Thinking about the long run

You can find more certainty and also boost both financial and non-financial returns by expanding your time horizon.

Assets with exposure to secular growth drivers can help improve your portfolio performance and reduce risk. And you can avoid behavioral pitfalls by redefining risk as meeting financial goals, instead of day-to-day volatility. 

  • Thematic investments uncover assets with exposure to secular growth drivers to help reduce risk
  • Private markets can offer higher returns and prevent selling temptations in exchange for illiquidity
  • Sustainable investments can positively impact society and the environment without risking returns
  • Liquidity. Longevity. Legacy. Rather than think of risk as day-to-day market volatility, you should view risk in terms of failing to achieve your long-term financial goals. This is the rationale behind our Liquidity. Longevity. Legacy. wealth management approach.

Liquidity. Longevity. Legacy. disclaimer

Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.

Are you seeking direction for your portfolio? Together we can find an answer. Connect with your UBS Financial Advisor or find one.

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Thursday, June 7, 2018
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Join us for our next UBS House View monthly call and get the latest on our market views and investment strategy guidance.*

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Research from CIO Americas, Wealth Management is provided by UBS Financial Services Inc. UBS Financial Services Incorporated of Puerto Rico is a subsidiary of UBS Financial Services Inc. In Canada, research from CIO Americas, Wealth Management is provided by UBS Investment Management Canada Inc.

*The views expressed in the research provided do not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific individuals. They are based on numerous assumptions. Different assumptions could result in materially different results. We recommend that you obtain financial and/or tax advice as to the implications (including tax) prior to investing.

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