UBS says investors need to diversify away from Big Tech — and shares 3 strategies that will them stay on top of the next phase of the market's recovery

0
73

trader screens nyse

  • Mark Haefele, chief investment officer at UBS Global Wealth Management, says high-growth tech stocks are unlikely to lead the market in the next phase of its recovery.
  • He’s telling investors how they can get exposure to other promising areas inside and outside of tech.
  • Haefele also tells investors to be careful in how they adjust their portfolios as well.
  • Visit Business Insider’s homepage for more stories.

Life might not be returning to its pre-pandemic normal any time soon, but if buying Big Tech made you a lot of money in 2020, UBS says it’s time to start getting your portfolio back to normal.

It’s not just that tech stocks dominated this year and their valuations have jumped. It’s that there’s good reason to expect more volatility ahead of the presidential election and the shaky prospects of further economic stimulus.

According to Mark Haefele, chief investment officer at UBS Global Wealth Management, that could leave tech especially vulnerable.

“We think global equity gains from here are likely to be driven by ‘more normal’ themes rather than the ‘stay at home’ dynamics that have favored mega-cap tech,” Haefele wrote. “For the next leg up, investors should diversify.”

In a note to clients, Haefele laid out three ways they can do that.

(1) Diversify within tech

While Haefele dismisses fears of a new tech bubble, it’s obvious that high-growth tech stocks have surged, and that means there’s more opportunity in other parts of the expansive sector. 

“We like 5G enablers and platform beneficiaries, which include leaders in smart mobility, cloud, and gaming, as well as China’s digital economy stocks, including ecommerce, food delivery, travel, search, and fintech services,” he said. “We like platform companies with network effects and accelerating market share gain prospects.”

Exposure to long term trends and strong product portfolios are keys, he added. He’s also optimistic about the prospects for greener technology in Europe based on the EU’s giant, long-term spending plans.

“We expect significant implications for most sectors, especially power generation, transport, industry, and building (heating/cooling),” Haefele said.

(2) Diversify beyond tech

Haefele is still optimistic about stocks in general, and is telling investors to look outside of tech as well. For a cyclical approach, he says he favors industrials in Germany and Europe and US mid-caps, which tend to outperform large-caps over longer stretches.

Taking a value approach, he says UK stocks are lagging even though earnings projections are improving, while emerging market value stocks could outperform over the next six to 12 months.

His longer-term recommendations include his future of humans theme, which includes investments in sustainability, digital transformation, genetic therapies, and access to water.

(3) Stay invested

If you find these suggestions persuasive and want to diversify your investments, Haefele warns against dumping your tech stocks in a hurry. That’s especially true if the sector is going through a correction. 

“Over the past five years, we’ve witnessed a number of corrections in the global tech sector,” he said. “Typically, these have led to 10%– 12% peak-to-trough pullbacks, followed by a 20%+ rebound in the following six months.”

He recommends investing cash that’s been sitting on the sidelines, dollar-cost averaging into the market, or being opportunistic and buying in during sell-offs.

Other strategies include using put-writing to bet against stocks before they fall, then buy them at discounted prices, or using structured investment products that allow them to make money when the market goes up, but limits their losses during downturns.

Read more:

A Global Asset Management Seoul Korea Magazine

This post was originally published on this site