Wealth manager says that now is the time to diversify into riskier, higher-yield asset classes rather than head to the hills
The current turmoil for the financial markets, business, and all of our lives, would seem to be reason enough to shift to lower-risk asset classes.
But investors who are favouring cash right now might be making a mistake according to one of the world’s largest wealth managers.
UBS recently surveyed more than 4,000 investors and business owners across 14 markets and found that almost half intend to maintain their current stock portfolios level over the next six months while 37% plan to invest more.
Investors’ short-term outlook weakened from 67% in the first quarter of 2020 to 46% in April, with those in the US showing the least confidence with a drop from 68% to 30%, with smaller declines among European and Asian respondents.
The fears of American investors have seen cash piles surge by more than US$1 trillion over the past eight weeks, according to UBS estimates.
But the wealth manager’s chief investment officer Mark Haefele told clients Tuesday that holding more cash is not necessarily the best investment strategy.
“Rushing to the exits may feel like a safe choice for those uncomfortable with the rally or unresolved Covid-19 risks. With yields on savings and money-market funds so low, we think investors will need to consider diversifying into riskier, higher-yielding assets such as lower-quality credit or stocks,” he wrote.
UBS advises considering other options including credit instead of cash, such as high-yield credit and dollar-denominated EM sovereign bonds or green bonds; select cyclicals, stable, and defensive stocks; and stocks in those sectors that have thrived due to the pandemic, including fintech, e-commerce, and genetic therapies.
