Citi Private Bank Says Get Positioned For Moderating Stock Gains This Year

Tom Burroughes

7 January 2014

Citi Private Bank is bullish about the prospects for global economic growth this year and is positioning its portfolios to capture outperformance by stocks over fixed income for a “meaningful period” in 2014.

The US private banking firm said, however, that investors should be cautious of how developed market equities are likely to see more moderate gains this year after strong risk-adjusted returns in 2013.

“Global equity returns in 2014 should be closer to 10 per cent than 30 per cent, even in the sustained recovery we expect,” the bank said in a note on its asset allocation and investment views for this year.

The bank noted that global fixed-income returns were near zero in 2013 after many years of bond price appreciation and it expects close to zero returns for high-grade bonds and about 4 per cent for high-yield instruments.

With its eye on more moderate market performance, Citi Private Bank said investors should position their portfolios accordingly. “Hedges of many kinds are valuable assets that have been `left in the dust’ amid a roaring bull market for equities and credit. Wise investors should be buyers of cheap hedging when market volatility is low. This is such a time,” it said.

“Have investors raised their risk tolerance too much while reducing their liquidity preference too little? The value of select less liquid investments may be underestimated. For investors with flexible time horizon, we believe that the return characteristics of certain private equity, real estate and hedge fund strategies may perform better, on a risk adjusted basis, than public markets at current relative valuation levels,” it said.

The bank said there has been a quickening of developed markets growth rates, but this has yet to fully affect emerging markets.

“We identify equity opportunities in select emerging market countries that possess external surpluses and low valuations. In contrast, investors should remain cautious of emerging markets which are likely to be negatively impacted by rising rates and changing growth patterns in developed markets,” the bank said.