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UBS issued its answers to a series of questions that it believes investors should think about headed into 2024. Among the key themes, the firm called for a preference for quality amid slower economic growth and diversification of both assets and geography. See below the question and answers UBS provided to investors:
#1: What’s ahead for equity markets in 2024?
UBS advised investors to take a look at increasing their holdings of quality stocks, given the likelihood of slower economic growth during the year, amid “moderate upside for equities.”
#2: What should I do with my cash holdings?
With UBS predicting a decline in interest rates during the year, the return on cash will not be as attractive as it has been recently. As a result, the firm doesn’t advice hoarding cash in 2024. Rather, investors should “limit overall cash balances” and “optimize yields in the year ahead.”
#3: What’s next for bonds in 2024?
Like with stocks, UBS nudged investors toward quality in the bond market, once again citing an “environment of slower US growth and inflation.”
#4: How can I hedge market risks?
Given that “no hedge works for all risks,” UBS advocated for a diverse hedging strategy. Among particular options, the firm pointed to “oil, gold, and structured solutions with capital protection features.”
#5: What can alternatives do for your portfolio?
As another way to achieve returns, contribute to risk-management and offer diversification, UBS suggested “alternative credit strategies for 2024, which can generate returns and exploit mispricing from elevated volatility in bond prices and spreads.”
#6: Can I invest sustainably across my portfolio?
Although the firm acknowledged some recent pushback against sustainability investing, which includes areas like green energy, UBS sees long-term risk-reward benefits from this segment of the market. “SI is bigger than a single strategy or sector, and recent pressure may offer another entry point,” the firm stated.
#7: Why invest in a balanced portfolio now?
With a near-term outlook of “elevated complexity and market volatility,” UBS pushed the idea of diversification as a way to take advantage of “a rare moment when in our base case we expect cash, bonds, stocks, and alternatives to all deliver reasonable returns.”
#8: How should I position in tech?
UBS particularly favors U.S. IT and noted that the “recent rebound in tech shares has further to run.” The firm added that the U.S. IT sector has a large number of quality names, which plays into the financial institution’s general preference for quality in 2024. Meanwhile, “the adoption of AI will unlock value across a number of sectors.”
#9: Where are the bright spots in emerging markets?
UBS noted potential in China, which the firm argued will see a further earnings recovery due to “recent policy measures from Beijing.” The financial institution also pointed to India as another bright spot, given that its “structural growth prospects provide attractive opportunities within emerging markets.”
#10: Can infrastructure add value to my portfolio?
The coming years should see an increase in the number of infrastructure investment opportunities, given the “momentum to upgrade infrastructure and support the transition to a net-zero economy continues.” The firm sees “attractive returns” from this approach, as well as additional diversification, due to “relatively low correlations to equities and bonds.”
Looking at Tuesday’s trading, the Nasdaq Composite (COMP.IND), S&P 500 (SP500), and Dow (DJI) along with each of their mirrored ETFs (DIA), (SPY), (VOO), (IVV), and (QQQ) all trade to the downside on Tuesday.