Investors Always Keep Their Cash Levels High – But Here’s What Attracts Them To Equities, According To UBS
Investors have kept their liquidity high even after markets and the economy have strengthened in recent months, as many seek – or wait – for the right opportunity to buy shares, according to UBS Group research .
Cash makes up 22% of individual investor portfolios globally, down just three percentage points since September, according to UBS’s quarterly investor sentiment survey. But 41% of investors plan to increase their exposure to equities over the next six months, with an interest in transformative technologies, sectors poised to do well in economic expansion and sustainable investing.
“Clients are looking to engage,” said Mike Ryan, division vice president at UBS Global Wealth Management, in a telephone interview. “People are now certainly more and more optimistic” after being “shaken” by the uncertainty of the pandemic and then by a sharp rebound in the market that followed massive government intervention.
UBS surveyed 2,850 investors around the world, with at least $ 1 million in assets to invest, from March 30 to April 18. The survey included investors who are not clients of UBS UBS,
according to a spokesperson for the Swiss bank.
Investor confidence has strengthened faster in the United States than in any other region when it comes to the economy, with the UBS survey indicating that American investors are the most optimistic in the world. The rollout of the COVID-19 vaccine is helping fuel positive investor sentiment, according to Ryan.
Also read: Stocks are at record highs and the US economy is booming. So why is everyone so panicked?
Seventy percent of U.S. investors are optimistic about their local economy, up from 52 percent three months ago, according to the survey.
“The vaccine was a game changer,” Ryan said. “It was a confidence booster.”
Seventy-one percent of U.S. investors expressed optimism about the stock market, up from 59 percent three months ago. The US stock market hit record highs this year, with the S&P 500 SPX,
and Nasdaq Composite COMP,
hitting new highs this week in the middle of the earnings season.
While 47% of investors globally plan to leave their portfolios unchanged for the next six months, those planning to add stocks cited technological transformation, diversification into recovery and sustainable investing as the driving themes, according to UBS.
Ryan explained that investors are looking beyond the current economic cycle and turning to transformative technologies such as healthcare technology, fintech or the application of 5G, while turning to “ESG-friendly investments. »Which take into account environmental, social and governance criteria.
They are also focusing on diversification into areas that were initially lagging behind during the pandemic – such as consumer discretionary, energy, industrials and financials – but can “carry the expansion now and extend the rally” Ryan said.
Yet with the strengthening economy comes inflation concerns, especially with the “powerful” mix of fiscal stimulus and the Federal Reserve’s accommodative monetary policy, he added.
UBS found that 61% of U.S. investors expect inflation to rise over the next three years, the highest result of any region. Globally, about half of the investors surveyed are “very concerned” that too high inflation will hurt their liquidity, with 26% being “somewhat worried”.
Too high inflation would encourage them to take out liquidity, according to UBS. Forty-one percent of investors would increase their equity holdings in such a scenario, while 31% told UBS they would increase their real estate positions.
“One of the things I think they rightly recognize is that, historically, stocks have been a better long-term hedge against inflation,” Ryan said. Although each investor is different, UBS considers a cash allocation of around 5% more typical over the long term, he said.
According to the UBS survey, the main reasons investors globally keep their liquidity high are to “wait for the right investment”, to want an emergency fund and protection against a recession. Some investors are looking for “clearer signs” that another coronavirus outbreak will be averted and that economic expansion will be “sustainable” even as government policy begins to moderate, Ryan said.
“They may well be waiting for a little break or a correction,” he added. “Some clients are looking for opportunities around a market downturn.”