Investors still keep their cash levels high, but this is what draws them to stocks, says UBS

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Investors have kept their cash stacks high even after markets and the economy strengthened in recent months, as many seek – or wait for the right buying opportunity in stocks, according to a survey by UBS Group. Cash represents 22% of individual investor portfolios globally, just three percentage points since September, according to UBS’s quarterly investor sentiment survey. But 41% of investors are considering increasing their exposure to equities in the next six months, with an interest in transformative technology, sectors that are poised to perform well in economic expansion and sustainable investing.

“Clients are looking to get involved,” said Mike Ryan, divisional vice president for UBS Global Wealth Management, in a telephone interview. “People are now certainly getting more optimistic” after being “whipped” by the uncertainty of the pandemic and then the strong market rebound that followed massive government intervention. UBS surveyed 2,850 investors globally, with at least $ 1 million in investable assets, from March 30 to April 18. The survey included investors who are not clients of UBS UBS, -1.04%, according to a spokesman for the Swiss bank. Investor sentiment has recovered faster in the US than in any other region when it comes to the economy, and the UBS survey found US investors to be the most optimistic globally. . The launch 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 scared? Seventy percent of US investors are optimistic about their local economy, up from 52% three months ago, according to the survey. “The vaccine changed the rules of the game,” Ryan said. “It was a confidence booster.” 71% of US investors expressed optimism about the stock market, up from 59% three months ago. The US stock market has risen to record highs this year, with the S&P 500 SPX, -0.02% and Nasdaq Composite COMP, -0.34% hitting new highs this week amid earnings season. While 47% of investors globally plan to leave their portfolios unchanged for the next six months, those considering adding stocks cited technology transformation, diversification in recovery and sustainable investing as driving themes, according to UBS. Ryan explained that investors are looking beyond the current business cycle and towards transformative technologies such as healthcare technology, fintech or the application of 5G, while also gravitating towards “ESG-friendly investments” that consider environmental, social and environmental criteria. governance. They are also focused on diversifying into areas that initially lagged during the pandemic, such as consumer discretionary, energy, industry and financial services, but they can “lead the expansion now and extend the rally,” Ryan said. However, with the strengthening economy raises concerns about inflation, particularly with the “powerful” combination of fiscal stimulus and the accommodative monetary policy of the Federal Reserve, he added. UBS found that 61% of US investors expect inflation to rise over the next three years, the highest finding of any region. Globally, about half of surveyed investors are “very concerned” that too much inflation will hurt their cash holdings, and 26% are “somewhat concerned.” Too much inflation would lead them to give up cash, according to UBS. 41% of investors would increase their stock holdings in such a scenario, while 31% told UBS that they would increase their real estate positions. “One of the things that I think they rightly acknowledge is that stocks have historically been a better long-term hedge against inflation,” Ryan said. While each investor will have a different situation, UBS considers a cash allocation of around 5% more typical in the long term, he said. Global investors’ top reasons for keeping cash levels high include “waiting for the right investment,” wanting an emergency fund and protection against a recession, according to the UBS survey. Some investors are looking for “clearer signs” that another coronavirus outbreak will be averted and that the economic expansion will be “durable” even as government policy begins to moderate, Ryan said. “They may well be waiting for a bit of a pause or correction,” he added. “Some clients are looking for opportunities around a market downturn.”