World in transition


2015 was a year in which major developed market equities initially rose 20%, then plunged 20%, and then finally rallied back again. How did you navigate the big waves? In such a market, a few wrong moves and even some of the world's most respected fund managers tumbled into double-digit negative performance.

United States

US investors who stuck to familiar asset classes fared better in recent years. In 2013 and 2014, a standard 60/40 mix of US stocks and bonds handily beat a portfolio that included “diversifying” assets like international stocks, credit, commodities or alternatives.

We expected that to change in 2015, and in some ways it did. But when the lights go out, we’ll likely look back on this year as one in which dollar strength eroded returns on unhedged international investments, in which the downside risks we viewed as relegated to the commodities portion of the portfolio unexpectedly leaked into other areas like credit.

In truth, investment returns were lackluster. Including FX- hedged international equities would have improved overall portfolio returns, but not enough to align them with our long-term estimates.

Thankfully, large swings in foreign exchange rates or commodity prices have diminished impacts over time, and we expect a more stable US dollar and commodity prices in 2016. In the US, we focus on those sectors leveraged to the ongoing US economic expansion, that generally have favorable earnings momentum, and/or trade at compelling attractive valuations.

We also still favor small caps over large and mid-caps. In fixed income, we still prefer investment grade US corporate bonds. IG bonds feature wider spreads than they have for several years, and therefore already reflect the risks inherent in the credit cycle. The asset class remains an important portfolio diversifier during periods of increased volatility and sell-off in risk assets.

In 2015, stingy markets offered no magic formula for beating benchmarks. We look to the year ahead with optimism, but investors will need to keep return expectations contained, raise their tolerance for volatility, and stay selective.

Six questions for 2016


What to do as rates rise? Might China face a hard landing? How crucial will the US presidential election be?

We have answers to these questions and more.

2016 and beyond

A world in transition

How will financial markets perform in 2016? What about the longer term?

Get our view on 2016 and future trends. And position your portfolio accordingly.

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You can also download the UBS House View: 2016 and beyond as a PDF.