The wealth management house recently set out its investment thinking, views on how clients have behaved during the pandemic, and what is likely once the lockdowns ease off.

UBS has not noticed a big difference in how older and younger clients approach the economic turmoil caused by the COVID-19 pandemic and associated lockdowns, the Swiss banking group said earlier this week.

There has been regular commentary in recent years about how different population cohorts – Baby Boomers, Generation Xers and Millennials – hold varying views about risk and investment returns. To some extent this is a simple function of time. The nearer to retirement a person is, the more they need to conserve rather than build wealth. However, it is also argued that younger people are keener on environmentally-driven investing, for example, or may be more skittish about risks because they have fewer experiences of big market gyrations.

Across the board, the real predictor of how any client reacts to adverse events is whether they have a robust long-term plan and asset allocation stance, and have the discipline to rebalance portfolios after severe market shifts, economists told journalists in a conference call earlier this week. 

“We are not splitting clients by age,” Dean Turner, economist, said.

In fact, a striking fact has been how disciplined many clients have been, rebalancing portfolios to capture market moves but not pulling their chips off the table. Clients remain fully invested, he said.

Colleagues noted that because many UBS clients are business owners, they have a realistic view of the economic cycle, which shapes their broader asset allocation.

“The degree of resilience in attitude to remaining invested is noticeable,” Turner said.

Elsewhere on the call, Mark Haefele, chief investment officer, UBS global wealth management, reiterated his view as stated in a recent note that the US Federal Reserve has been blunt in using its monetary policy levels to sustain the economy. 

Asked if the injection of fresh central bank quantitative easing, coupled with a revival in the global economy after lockdowns would trigger inflation, Haefele said he did not think this is likely in the short-term, in part because consumption shifts were focused on specific sectors of the economy.

“In the near-term there is going to be a relatively subdued inflation environment,” Haefele said. 

Scenarios
The bank sets out the areas it wants to invest in depending on whether there’s a quick, sharp recovery from the pandemic; a “central” scenario for a more modest, and less rapid, recovery, and a downside scenario where there is a large second wave of the virus. 

In the optimistic view, UBS recommends going into US-cap stocks, which this year have lagged larger-cap equities because of the latter stocks’ perceived greater resilience over COVID-19. Another preference in this outcome is UK equities, as they trade at a large discount. The US dollar should weaken as the need for safe-haven trades fades, UBS said. 

Under the central outlook, there is a case for being upbeat on global equity markets, because excess liquidity created by central banks will bolster such assets. An environment in which interest rates stay lower for longer will also be positive for the credit market, such as high yield debt in the US and Asia. Private markets also offer an opportunity to achieve yield. 

Under the negative scenario, UBS favours more active management, including greater use of hedge funds, gold and the Swiss franc.