UBS: Shifting the Balance

Norway’s sovereign wealth fund, the world’s largest, announced this month that it will sell government bonds to buy more real estate. This represents a shift away from securities that have been brought to record highs by central bank policy and are vulnerable as US interest rates rise.

Many of the clients I speak to say they are a considering changes to their asset allocations too. But what to do?

Equity markets are volatile, many bonds are overpriced, and real estate is not only illiquid but also offers poor value in many major global cities: our recently published UBS Global Real Estate Bubble Index highlights how some property markets are in bubble-risk territory. An alternative we recommend to clients looking for longer term investments is exposure to structural trends, such as oncology, clean air, or emerging market healthcare.

With a limited menu of attractively priced assets, we still believe that equities are the best choice, and we are overweight the Eurozone and Japanese markets. For more risk-averse investors looking to trim equity volatility, we have launched a new strategy that systematically switches out of equities as draw-down signals increase.

We are initiating one new global tactical asset allocation position this month: an overweight position in the Norwegian krone relative to the euro. The Norwegian currency has been battered in recent months by the depressed oil price and is now trading close to its lowest level since 2000 on a trade-weighted basis. We believe that the economy is bottoming, and the Norges Bank is unlikely to cut interest rates anytime soon. This should drive a wider differential between the yields on offer in Norway and the Eurozone, where additional European Central Bank (ECB) easing could weigh further on the euro.

Der vollständige Beitrag als pdf-Dokument

Die Einschätzungen von UBS für Dezember als Präsentation