U.S. Trust to Investors: Defensive Investing Still Rules in 2012 but Prepare for Benefits of Global Rebalancing
Wealthy investors are exploring long-term strategies to reposition investment portfolios in anticipation of global rebalancing, according to the U.S. Trust 2012 Investment Strategy Overview published today.
- (1888PressRelease) January 20, 2012 - In the near term, U.S. Trust advises high net worth investors to invest tactically yet defensively, capitalizing on market stability to lower risk and reduce cyclical exposure with high-yield, cash flow-driven and dividend-based investment strategies. At the same time, U.S. Trust says the wealthy should proactively position portfolios to take advantage of investment opportunities from global rebalancing, a cycle still in the early stages but likely to be the dominant driver of investment performance over the long term.
“Investors should be patient, take advantage of the volatility when good investments get thrown out with the bad, and look to buy high quality assets at attractive entry points that can improve portfolio yield and stability,” said Chris Hyzy, chief investment officer of U.S. Trust.
U.S. Trust’s 2012 Market Outlook and Portfolio Adjustments: in its 2012 Investment Strategy Overview, U.S. Trust says tactical adjustments can bring portfolios to a more risk-neutral balance over time and allow cash flow and yield-tilt strategies to be the primary driver of total return.
The U.S. Trust outlook report expects a lingering dark cloud over fundamentals, with the S&P 500 Index producing only a slight uptick in profits in 2012. After a beginning of the year run up based on jobs and earnings optimism, the index could trade as low as 1150 around midyear and likely end 2012 in the range of 1300 to 1350.
Quality yield will be in short supply, so emphasis should be placed on equities over fixed income at current levels, given the yield advantage. U.S. equities are expected to outperform most major developed market equities, including the Eurozone and Japanese markets, while emerging market equities are expected to continue to offer attractive returns.
Fixed income investors should emphasize corporate bonds, particularly high yield, over U.S. Treasuries. In the tax-exempt space, investors should favor high-quality municipal bonds, including essential-service revenue bonds and general obligation bonds of financially strong local governments.
While the long-term commodity bull market is expected to remain intact, commodities will be vulnerable in the near-term to the recession “winds” blowing from Europe and a cyclical slowdown in China. U.S. Trust recommends slightly lowering tactical allocation to commodities and shifting to cash while looking for re-entry points at attractive valuations. Long-term investors should consider actively managing commodity exposure using roll and long/short investment strategies as well as farm and timber assets for those who can accept some illiquidity.
Precious metals, led by gold and silver, will remain an effective hedge against rising risks, particularly from instability in the European financial system.
To help dampen portfolio volatility, high net worth investors should consider hedge fund investments in liquid securities that are run by managers with diversified strategies who understand the drivers of balance sheet repair around the world and who use leverage responsibly.
The value of residential real estate is expected to remain depressed in 2012, with more time needed to liquidate excess inventory before taking a small upturn beginning in 2013.
From market strategy to portfolio allocation
Part of the “Investing in the New Global Economy” initiative, the U.S. Trust 2012 Investment Strategy Overview, entitled “The Year the Can Kicks Back,” is only one component of a larger ongoing initiative by U.S. Trust that dates back to 2007 and provides clients with market insights, webcasts, investment solutions and proprietary, customizable portfolio strategies to help navigate opportunities amid the uncertainties of the global economic shift.
“High net worth investors are struggling with the best way to simultaneously ‘de-risk’ and ‘re-risk,’ their portfolios, and they also want to be actively engaged in the investing process and implement specific solutions to address their individual goals,” said Keith Banks, president of U.S. Trust. “Over the past two years, U.S. Trust bucked an industry trend by committing increased resources to in-house research, strategy and proprietary investment strategies that allow for flexible portfolio construction and a high degree of customization our clients want from us. This enables us to work with our clients to invest in this new global economy in ways that are right for them.”
A summary of U.S. Trust’s 2012 Investment Strategy Overview, as well as videos of additional investment insights and thinking, can be found at: http://www.ustrust.com/UST/Pages/year-ahead-insights.aspx.
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The views and opinions expressed are those of U.S. Trust, are subject to change without notice at any time, and may differ from views expressed by Bank of America and its affiliates. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts will come to pass. These materials are provided for informational purposes only.
All sector and asset allocation recommendations must be considered in the context of an individual investor’s goals, time horizon and risk tolerance. Not all recommendations will be suitable for all investors.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Investing in fixed income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.
International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments.
Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.
There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors.
Gold, like any other coin or bullion, is subject to investment risks such as perceived scarcity of coin, its quality, current demand, market sentiment and economic factors.
Nonfinancial assets, such timber and farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.
An investment in a hedge fund involves a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage, and short sales which can magnify potential losses or gains. Restrictions exist on the ability to redeem units in a hedge fund. Hedge funds are speculative and involve a high degree of risk.
Investment products:
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Certain U.S. Trust associates are registered representatives with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and may assist you with investment products and services provided through MLPF&S and other nonbank investment affiliates. MLPF&S is a registered broker-dealer, member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BAC”). U.S. Trust operates through Bank of America, N.A., and other subsidiaries of BAC.
Bank of America, N.A., Member FDIC.© 2012 Bank of America Corporation. All rights reserved.
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