UBS’ giant wealth management arm is leaning towards bonds over stocks, arguing that the asset class is set for juicy returns with little risk as central banks cut interest rates, its chief investment officer said.
Bonds have fared far worse than stocks this year, as economic growth has beaten expectations and central banks have held interest rates high for longer than expected.
An ICE BofA index of global government and corporate bonds has fallen around 1.4 per cent, while the MSCI world stock index has jumped more than 8 per cent.
Yet Mark Haefele, CIO of UBS Global Wealth Management, said bond yields are now at attractive levels after central banks hiked rates to tame inflation. He said they should fall as central banks lower borrowing costs, boosting bond prices.
“On a risk-adjusted basis, we have a slight preference for bonds right now,” he said in an interview on Friday (May 31).
“Given the higher (stock) valuations, the stacked political calendar, the geopolitical events going on, we might see equity volatility pick up into the back half of the year. And so collecting those (bond) yields is an attractive place to wait.”
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Haefele shrugged off concerns that inflation is remaining sticky above central banks’ 2 per cent target. He believes the European Central Bank will cut interest rates this week and the Federal Reserve is likely to do the same in September and December.
He said he is particularly keen on high-grade corporate credit and five-year US Treasury bonds, which are less likely to be affected than longer-dated bonds by concerns over government debt levels.
UBS Global Wealth Management provides investment and other services to wealthy clients, and had US$4 trillion of invested assets in the first quarter. REUTERS
