They're not “outright bearish,” but strategists at UBS AG's Wealth Management Americas unit are recommending a more cautious allocation of client assets
They're not “outright bearish,” but strategists at UBS AG's Wealth Management Americas unit are recommending a more cautious allocation of client assets.
“Markets remain volatile amid a confluence of risk factors that could well spill over into the real economy,” research head Michael Ryan and strategist Stephen Freedman wrote in a new report, “A more cautious near-term approach.”
Improved credit conditions and corporate earnings are already baked into stock and bond prices, they stated, while “consensus 2011 S&P 500 earnings per share estimates are at risk for downgrades.”
Stocks have risen 60% since their March 2009 lows, even with the recent market correction, and there is “no clear catalyst to drive the next up leg of a rally,” the analysts wrote.
Their conclusion: Position portfolios defensively. In their rejiggering, the strategists are reducing equities to moderate underweight, from neutral, and lowering commodities to neutral, from moderate overweight. “In turn, we upgrade cash from moderate underweight to overweight.”
They also downgraded their previous fixed-income emphasis on credit-sensitive sectors such as high-yield bonds and preferred securities to neutral, from overweight. Regionally, they are shifting their emphasis in stocks and bonds from emerging markets to the U.S.
For a moderate-risk portfolio, the new UBS-recommended portfolio allocation is 41% to equities (down from a benchmark of 44%), 35.5% to fixed income (down from 37%), 12% to alternative investments (unchanged) and 5% to commodities (unchanged). Their new cash allocation recommendation rises to 6.5%, from 2%, in the benchmark portfolio.
“Our recommended positioning is more defensive and reflective of tail risks, rather than outright bearish and driven by deteriorating fundamentals,” the analysts wrote.
