These include financials, technology, and a general proliferation in share buybacks and dividend payments from US corporates.
The firm also believes it can benefit from restructuring measures in the eurozone, and holds some selected eurozone banks. Another theme it is playing through its portfolios is water-linked investments. It also favours emerging markets, in particular China.
Within fixed income, UBS WM favours US high yield and global investment grade credit over developed market high grade bonds. Corporate hybrids and European leveraged loans also have an allocation within UBS’s portfolios. In the alternatives space, equity hedge funds are currently UBS’s favoured holdings.
In the technology sector, the firm believes secular growth drivers such as mobility, cloud computing, e-commerce, and big data should drive earnings growth over the coming years. More cyclically, US technology companies should also benefit from a pickup in business spending on technology products and services as the outlook for global corporate profits improves. Sector valuations, UBS notes, are near 20-year lows.
Nick Perryman, head of investment products & services at UBS WM, says for exposure to the technology sector he likes Henderson Global Technology as a strong core fund. “It offers exposure via 55 to 75 stocks selected on the basis of fundamental analysis. The manager focuses on a company’s ability to innovate whilst maintaining strong barriers to entry. One of the fund’s strong points is that it avoids investing in cyclical strength stocks that have limited life cycles. We see Henderson Global Technology as a conviction portfolio, based around good stock-picking.”
Henderson China Opportunities is another fund pick. “We see Henderson China Opportunities as having a well thought out investment process that delivers well over a long-term period,” says Perryman. “We like the diversification across the portfolio as the fund is based on a combination of bottom-up stock selection with a quantitative overlay. The fund is particularly attractive given it recently reduced volatility in the portfolio by increasing exposure to larger capitalisation companies.”
Within equity long/short, Perryman highlights two funds: Alken Absolute Return Europe UCITS and Schroder GAIA Sirios US Equity. The Alken fund takes advantage of the favourable environment for stock pickers to generate excess returns via a combination of long and short exposure, he says. “[The Schroder fund] has lower volatility than long-only strategies. We like the fund’s strategy, which takes positions in attractively valued growth companies, shorting companies with deteriorating fundamentals and weak balance sheets. The fund adopts a relatively liquid strategy with only moderate use of leverage.”
