By Brian Hershberg
Dec. 30, 2020
Resolutions often don’t make it through February in a normal year, let alone this past February, when the coronavirus began to slam U.S. markets, costing millions of Americans their jobs in a matter of weeks. So investors and retirement savers might be skeptical of making 2021 resolutions as vaccines roll out and uncertainty lingers.
But Mark Haefele, chief investment officer at UBS Global Wealth Management, has investors covered in his year-end letter to clients. He lays out several portfolio resolutions and investment strategies to consider in the new year.
Among them: think about the effect of a weaker U.S. dollar and reposition accordingly; position for “the Next Big Thing,” which UBS sees emerging from companies using technology to disrupt other sectors; shift some, or all, of your portfolio to be more sustainable; and diversify some public equity holdings into private markets.
Here is a closer look at three of the suggested portfolio resolutions:
Review your financial plan. UBS recommends that investors divide their net worth into three strategies—liquidity, longevity, and legacy—and use them to align financial goals and maximize the chances of success.
- On liquidity, Haefele writes, the goal should be to set aside enough cash, bonds, or credit lines to cover the cash flow that would otherwise be pulled out of your portfolio over the next two to five years. The pandemic underscored the importance of this strategy.
- On longevity, Haefele points to the market’s dark days in early 2020, when the S&P 500 fell nearly 10% in a single session, by way of example. “Many people sold investments in March out of fear,” he writes. Investors who sold then, and didn’t get back in, or got back in late, missed all or part of an epic rally. “By keeping a well-diversified longevity strategy...investors can avoid the potential risks of overtrading,” he adds.
- Haefele says legacy assets, or those that exceed an investor’s lifetime goals, can be invested more aggressively to allow for greater growth potential.
Position for upside—and diversify. UBS anticipates further gains in stock markets in 2021, based in part on the rollout of vaccines and the resumption of normal life, as well as a continued shift into global small-caps and value stocks, among other areas.
To prepare for those potential gains, UBS suggests diversifying for the next leg of the rotation into small- and mid-caps, positioning for a weaker dollar, and investing in stocks that represent “the Next Big Thing,” such as 5G or fintech companies.
For the downside scenario that could result if delays in vaccine availability, or reduced effectiveness, prolong the Covid-19 crisis, UBS points to gold and option structures, among other ideas to consider for protection.
Should a downside scenario come to pass, investors should be on the lookout for opportunities amid the volatility, Haefele adds.
Try and boost the yield of your portfolio. “Markets aren’t pricing a first U.S. rate hike for nearly three years, and are only pricing in three hikes over the next five years,” Haefele writes. That means yield will still be difficult to find.
However, UBS thinks investors can get additional income from credit in several areas, including emerging market dollar-denominated bonds, Asian high-yield bonds, and dividend stocks.
Copyright 2020 Dow Jones & Company, Inc. All Rights Reserved.