Questions you can ask your UBS Financial Advisor:
- Broadly speaking, how does diversification help dampen different kinds of economic and geopolitical risk?
- How could my portfolio benefit from ongoing monetary stimulus?
- The equity earnings yield for the MSCI All Country World Index stands at 5.6% based on 12-month trailing earnings per share. How will earnings growth progress?
A young tech entrepreneur recently told me that social media postings are fuelled by a Fear of Missing Out (FOMO) and a Fear of Joining In (FOJI). Talking about FOMO versus FOJI sounds a bit more sophisticated than the old Wall Street mantra of greed versus fear. But the concepts are the same. The ongoing run in equities is leading to FOMO (greed) building up among investors currently sitting on cash. On the flipside, all-time highs in equity markets and the potential for central banks to withdraw stimulus mean plenty of investors are starting to feel the FOJI (fear) too.
We use our investment process to help us put investor greed and fear in per¬spective. During the first half of 2017, despite many apparent risks in the global environment, our analysis led us to remain overweight risk, and our portfolios benefited as ongoing monetary stimulus, Chinese reflation and global earnings growth offset declining hopes for U.S. fiscal stimulus. What has worked for us has been to focus less on front-page headlines, and more on how the underlying eco¬nomic data is playing out.
As we enter the second half of the year, we still think it makes sense to remain overweight risk assets: Central banks continue to provide extraordinary stimulus, earnings are expanding and equities remain attractively priced relative to bonds. But striking the correct balance between fear and greed will become harder because the Federal Reserve continues to tighten policy, price-to-earnings ratios are higher, and, given already low levels of volatility, a realization of geopolitical events could cause investors to demand higher-risk premiums.
So while we remain overweight in global equities, we are marginally reducing our exposure to upward-trending markets this month, closing our overweight to U.S. high-yield credit relative to government bonds as valuations are now less appealing.
CIO Americas, Wealth Management (CIO-A WM) offers investment strategies and specific asset allocation guidance in its new UBS House View publication entitled:” FOMO versus FOJI”
Explore CIO-A WM’s full 16 sustainable investment themes.
Is your portfolio prepared to overcome challenges in a changing global investment environment? Together we can find an answer. Connect with your UBS Financial Advisor or find one.
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