“Government regulation is the #1 excuse for why big companies think they can’t compete with innovators,” said former Apple, Tesla and Gap Executive, George Blankenship. Best-selling author Matt Ridley offered his perspective on innovation, saying “It’s not just high-tech things that change…there are extraordinary changes happening in low tech fields. It’s when technology becomes affordable that it becomes transformative.“
These and other insights into the future of innovation, disruption and transformation were on full display at the 2017 CIO Global Forum in Los Angeles. On June 20, 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.
They 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
What is the status of President Trump’s regulatory reform policies? Is NAFTA due for an overhaul? What are the biggest risks to global economic growth? Our panelists explored how political and geopolitical events could impact the economy, financial markets and portfolios—and the audience weighed in. Key insights and takeaways included:
- On the likelihood of the Trump administration implementing its agenda, Heather Kennedy Miner, CFA®, Global Head of Strategic Advisory Solutions Goldman Sachs Asset Management, said “There is a high degree of confidence among investors that tax reform will take place this year.” Frank Kelly, Global Coordinator, Public Affairs/Head, Gov & Pub Affairs, North and LatAm Communications, Deutsche Asset Management said, “I don’t think for now there’s going to be much bipartisan effort. One area I could see bipartisan effort is in infrastructure.”
- When it comes to rethinking the status of NAFTA, given the new administration and the evolution of trade, Mike Ryan, CFA®, Chief Investment Officer Americas, UBS WM CIO, offered that, “NAFTA needs to be updated for the new economy.” However, Heather Kennedy Miner added that she believed, “Any changes to NAFTA are likely to be window dressing.”
- Audience question: To gain a pulse on what clients are thinking, the audience was asked “What is the biggest risk to global economic growth?” Their top answers included: Terrorism, Nationalism, War, Trump and Populism. When asked “Which area of the world offers the most economic opportunity?”, their top answers were: the U.S., China, India and Europe.
Today’s markets: Investing in the “new” new normal
Are U.S. investments still poised to outperform the rest of the world? How should politics impact your investment strategy? Our panelists explored these and other questions facing markets around the world and asset classes across the spectrum, with each offering their outlook. Key insights and takeaways included:
- On earnings and growth, Jeremy Zirin, CFA®, Head of Investment Strategy Americas, UBS WM CIO, stated, “The next couple of years should be good in terms of earnings, and not just in the U.S.” He added, “We expect 10%-12% earnings growth this year.”
- When it comes to asset allocation, Jeffrey Rosenberg, CFA®, Chief Fixed Income Strategist, BlackRock, offered his assessment on the role of fixed income in portfolios, saying it “very much depends on your goals: 1) preservation of principal, 2) growth or 3) income.” Matt McLennan, CFA®, Head of the Global Value Team, First Eagle Investment Management, contributed another perspective on asset allocation, saying “Since confidence is high, you should think about having a ballast in your portfolio”, adding that his firm prefers gold to hedge.
- 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 (41%) between 6% and 8% annually (33%) and more than 8% annually (16%). When asked, “Which region/country presents the best investment opportunity over the next year?”, the top answers were: the U.S., the Eurozone and Emerging markets.
The evolving investor: Beyond what’s rational
Are you aware of your own biases as an investor? And how does investor behavior in general impact the broader market? Our panelists uncovered the powerful psychological dimension of investing and helped clarify how we can overcome the mental biases that sometimes limit our decision making. Key insights and takeaways included:
- As a check and balance against behavioral bias, overconfidence or unnecessarily chasing performance, it helps to set some parameters for yourself. Terry Odean, Rudd Family Foundation Professor of Finance Group, Haas School of Business at the University of California, Berkeley, suggests, “One nice thing about having a Financial Advisor is that it can slow you down a bit and give you a different perspective” when it comes to avoiding overbuying or panicked selling. Dennis Ruhl, CFA®, CIO of U.S. Behavioral Finance Equity Group, JP Morgan Asset Management adds, “One of the best ways to avoid behavioral bias is to have a framework and a set of rules, then ask yourself, ‘Does this idea fit into my framework?’“
- Being aware and prepared is also key. Svetlana Gherzi, PhD, Behavioral Finance Specialist Americas, UBS WM CIO said that, when investing, “Being aware of the bias is the first step in addressing overconfidence.” Dennis Ruhl shifted the perspective to the behavioral biases of investors as a whole, stating that, when it comes to the markets, “Behavioral biases create inefficiencies, which create opportunities.”
Emerging themes: Defining the future of the future
What industry will be the most disrupted by technology in the next 10 years? Could artificial intelligence replace our own—and if so, what will be the impact on employment and the companies exposed to the fourth industrial revolution? Our panelists took a glimpse into the future to uncover some of the most powerful trends and investment opportunities expected to emerge. Key insights and takeaways included:
- On spotting the most important trends, Nick, said, ”The key is to identify a change that has a broad enough effect—and a clear enough effect—that impacts the bottom line.” Laura Kane added that “We are not completely powerless when it comes to predicting the future. We can observe numeric trends in urbanization, aging and population growth.”
- Increasing urbanization is also a significant global shift. “55% of the population lives in cities. 85% of GDP is generated by cities,” noted Daniel Roarty, Chief Investment Officer—Global Growth and Thematic, AB. And as cities become more crowded, safety concerns grow. Laura Kane, Head of Investment Themes Americas, UBS WM CIO, asserted that “Driverless cars will address traffic congestion and safety concerns.”
- Audience question: When asked “When you look to the future, what is your biggest concern?”, popular answers were: water, terrorism, the environment and climate change. When asked “Which region/country presents the best investment opportunity over the next year?”, the top answers were: the U.S., the Eurozone and Emerging markets.
Keynote discussion: Innovation, transformation and opportunity
How can companies innovate to remain competitive? How dependent are companies on government policy, and how can they act independently to affect change? 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 identifying the world’s most powerful upcoming trends, George Blankenship said, “Look for things that have a convenience factor, save time and are an experience.” Matt Ridley added, “Look at what’s happening in China and India. They are doing things differently.”
- What does the distant future hold? While we can hypothesize, it’s not entirely clear. Matt Ridley offered that, “We had 50 years of rapid change in transportation. Then 50 years of rapid change in communication. Something tells me that the next 50 years will bring change in a different area.” He added, “When the internet was invented, we didn’t predict the search engine or social media…We are terrible at predicting the future.”
To understand how these global and national economic trends may impact your own investment strategy, connect with your UBS Financial Advisor or find a UBS Financial Advisor.
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