“Big transformation is when things bring down the cost for ordinary people—and quite low-tech things can change pretty dramatically and can change our lives,” said best-selling author, scientist and journalist Matt Ridley. Former Apple, Tesla and GAP Executive George Blankenship also offered an optimistic outlook on the future saying that it’s still possible for big companies to innovate and be successful “as long as, at the top of the company, you have an innovative mindset and the courage to continue to be innovative.”
These and other insights into the future of innovation, disruption and transformation were on full display at the 2017 CIO Global Forum in New York City, hosted by Mark Haefele, Ph.D, Global Chief Investment Officer, UBS Wealth Management, and Mike Ryan, CFA, Chief Investment Officer Americas, UBS Wealth Management.
Preeminent thought leaders from a diverse range of expertise and disciplines around the world shared timely perspective on the most important trends impacting the global economy, markets and investments.
Panelists explored the impact of politics on the economy, provided insights into navigating financial markets in today’s unique investment environment and delved into the psychological dimension of investing. Looking beyond the headlines and into the future, they also identified emerging long-term investment themes around the world.
Explore the insights:
The macro picture: Return of the political economy
Amid the daily media noise rising around political rhetoric, what are the true drivers of the economy and markets that investors need to be most aware of? Given recent legislative setbacks, what are the prospects of real tax reform and infrastructure investment? How real is the North Korean threat and what could it mean for you? Our panelists explored these issues, offered investors a way forward and the audience weighed in. Key insights and takeaways included:
- While tweets and political one-upmanship may garner many of the top headlines today, the most relevant economic force for investors could come from the Fed. Mike Ryan, CFA®, Chief Investment Officer Americas, for UBS WM CIO, said “In the middle of this extraordinary monetary policy transition, we’re going to have a leadership transition. It’s going to be a period of uncertainty for markets.” Heather Kennedy Miner, CFA®, Global Head of Strategic Advisory Solutions for Goldman Sachs Asset Management, agreed, saying “Fed leadership is going to be incredibly important over the course of 2018 and beyond, particularly as it relates to balance sheet normalization.” Frank Kelly, Global Coordinator, Public Affairs/Head, Gov & Pub Affairs, North and LatAm Communications, Deutsche Asset Management, added, “Put the earmuffs on and focus on the Fed.”
- On tax reform, many panelists agreed that legislation could yield significant benefits to both investors and the economy. The only question was around timing, scope and scale. John Savercool, Head of the UBS U.S. Office of Public Policy, asserted that “Republicans will pass a [tax] bill because they know they have to. But I think that the tax bill will morph from a tax reform bill…to more of a tax reduction bill.” Mike Ryan agreed that the benefits of tax reform could be substantial, but with conditions, adding: “We need to make it permanent. I think this tinkering around…. with the tax code every couple of years undermines confidence.”
- Audience question: To gain a pulse on what clients are thinking, the audience was asked: “Outside of U.S. politics, what’s the biggest risk to global economic growth?” Their top answers included: A misstep by the Federal Reserve, length of economic expansion and North Korea tensions. When asked “Which area of the world offers the most economic opportunity?", their top answers were: the U.S., China, India and Europe.
Is your portfolio positioned for political changes that lie ahead? Connect with your UBS Financial Advisor or find a UBS Financial Advisor.
Today’s markets: Investing in the “new” new normal
Does this nine-year bull market still have room to run? Where are the best investment opportunities over the next year? Which asset classes are expected to outperform? Our panelists explored these and other questions and offered investors guidance. Key insights and takeaways included:
- On the outlook for continued economic growth, Jeremy Zirin, CFA®, Head of Investment Strategy Americas for UBS WM CIO, noted that “The biggest driver of equity markets, by far, is earnings. The reason we’re constructive on the U.S. equity markets and even slightly more constructive outside of the U.S., is because we're seeing positive signs on the corporate profit cycle.” He added that earnings for the S&P 500 were up 12% in the first half of this year—and are expected to be up 8% on the back half of the year. Jeffrey Rosenberg, CFA®, Chief Fixed Income Strategist for BlackRock, advised investors to not just look at higher returns in a vacuum, but also to ask themselves, “How much risk do I have to take to get those returns?” given that the nature of the risk/return relationship appears to be changing.
- When it comes to asset allocation, Tom Goggins, Senior Portfolio Manager for John Hancock Investments, said he sees value on the credit side in “emerging markets and emerging market corporates,” including in Mexico, Indonesia, Malaysia and Brazil. Jeffrey Rosenberg noted “I like emerging market/developed market convergence trade...and we’re seeing some real value being brought back into the very front end of lower-risk investments.” Matt McLennan, CFA®, Head of the Global Value Team for First Eagle Investment Management, acknowledged that, while “The crystal ball is always foggy at best…we recognize the secular challenges in the landscape and have a part of our portfolio devoted to a potential hedge in gold.”
- Audience question: When asked “How much do you expect your portfolio to return, on average each year, over the next 10 years?”, the top answers were: Between 4% and 6% annually (43%), between 6% and 8% annually (33%) and more than 8% annually (20%). When asked “Which region/country presents the best investment opportunity over the next year?”, the top answers were: Europe, the U.S., India, China and emerging markets.
Are your investments prepared for a constantly shifting global landscape? Connect with your UBS Financial Advisor or find a UBS Financial Advisor.
The evolving investor: Beyond what’s rational
Do you think you are a better driver than most? How about a better investor? It turns out that many of us suffer from overconfidence across a wide range of tasks, including when it comes to investing. Our panelists helped clarify how investors can uncover—and overcome—their mental biases when investing in order to help improve future outcomes.
Key insights and takeaways included:
- Svetlana Gherzi, Ph.D. Behavioral Finance Specialist Americas for UBS WM CIO, acknowledged that, “Generally, overconfidence is a great bias to have from an everyday perspective—it allows us to take risks, start new companies, try something different. But when it comes to investments, it’s slightly different.” Terry Odean, Rudd Family Foundation Professor of Finance Group at the Haas School of Business at the University of California, Berkeley, agreed and found that, although “overconfident investors traded more, they earned less. Because when you’re sure you’re right, there’s no need to diversify.” He added that “men are more overconfident” than women and, according to one study, investments made by “men and women underperformed vs. a simple buy-and-hold approach, but men underperformed 1% more a year than women.”
- At the same time, some investors can fall into the trap of being underconfident. Dennis Ruhl, CFA®, CIO of U.S. Behavioral Finance Equity Group for JP Morgan Asset Management, noted that underconfidence “can be a problem if it leads to over-paralysis or fear.” It could cause them to miss out on market opportunities and future income. The panelists agreed that the best approach was for investors to recognize their biases, don’t get emotional, have a plan for their financial future and stick to it.
Emerging themes: Defining the future of the future
How is global urbanization transforming the way the world will consume and live? Will artificial intelligence increase human productivity—or replace it? What companies stand to benefit most from these and other powerful, emerging trends? Our panelists took a glimpse into the future and shared the challenges investors will face and the opportunities they can seize.
Key insights and takeaways included:
- On population growth and urbanization, Laura Kane, CFA®, CPA®, Head of Investment Themes Americas, UBS WM CIO, said, ”We’re going to see a lot of innovation in terms of ‘How do we do more with less resources per person?’ and that will take a lot of shapes.” Chris McKnett, Head ESG Strategist for State Street Global Advisors added, “There’s 28 mega cities now with 10 million plus [people]. There’s projected to be around 41 by 2030.”
- Companies that stand to benefit from future trends include healthcare services, technology and artificial intelligence. Beyond these, Colin Moore, Global Chief Investment Officer for Columbia Threadneedle Investments, believes the rise of electric vehicles is imminent. “It’s vastly easier to make an electric vehicle than one with a conventional internal combustion engine,” he said, adding that the costs are starting to equalize. He continued, “If you’re running a car company, the plant that makes the engine is the most capital-intensive part of your entire business.” This efficiency could also improve the environment of, say, a country like China significantly. Chris McKnett favored a different industry. He said that because the increase of cloud-based operations is giving rise to the Internet of things, it also was increasing cybervulnerability. “If I’m in the cybersecurity business right now,” he said, “I’m feeling pretty optimistic about my future prospects.”
Do you have the confidence that comes from having a plan? Connect with your UBS Financial Advisor or find a UBS Financial Advisor.
Keynote discussion: Innovation, transformation and opportunity
Are disruptive companies disrupting themselves? Which companies are redefining innovation and how will they benefit from it vs. those that don’t innovate? What’s the future of innovation and how can we participate in its growth? Our keynote speakers, George Blankenship, former Apple, Tesla, and GAP executive and Matt Ridley, best-selling author, scientist and journalist, offered their perspectives. Key insights and takeaways included:
- On the question of whether the U.S. is in jeopardy of losing its leadership position in innovation, George Blankenship said, “I don’t think so...The reason is, I think what you need to start with in order to have innovation and disruption at an ongoing rate, is you need to have a mindset that nothing's impossible. You need to have a group of people who really believe that anything can be done. The second thing you need is money…And the money’s there. The third thing we have in the U.S. is we have a reward. We reward innovation and disruption.” In terms of innovation throughout the world, Matt Ridley said that, despite the fact there are over one billion people currently without electricity, “There’s some spectacular success stories in Africa. Child mortality is coming down. Malaria mortality is halved in the last 15 years—an incredible change…And when you look at the data, global inequality has been plummeting these last ten years, particularly since the great recession.”
- Where will the next generation of innovation appear? Though Matt Ridley acknowledges, “We’re not very good about identifying where the next innovation will come from,” he asserts that the ‘Cognification revolution,’ which is the ability of machines to learn about the world without being programmed for it, could be humanity’s next breakthrough and “where we should be investing.” George Blankenship pointed out that “20 years ago, 90% of groceries were bought in grocery stores. Today it’s 50%.” He argues that companies that will be most rewarded for significant growth will be the ones who create products or delivery methods that answer "yes" to the questions: “Does it save time? Is there a convenience factor? And is there an experience associated with it?”
Is your portfolio ready for what’s next? Connect with your UBS Financial Advisor or find a UBS Financial Advisor.