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Declaration
This report has been prepared by UBS AG, UBS Switzerland AG and UBS Financial Services Inc.
Please see the important disclaimer at the end of the document.
10 for 2020
6. Prefer EM debt. Yields on the safest bonds are low, while risks are rising
among some high yield issuers. We recommend emerging market US dol-
lar-denominated sovereign debt and opting for bonds supporting sustainability
and related purposes over traditional bonds.
10. Real estate risks. Risks in the owner-occupied housing market are elevated
in a range of major cities. Investors should seek commercial real estate exposed
to long-term trends like e-commerce and rental housing-oriented real estate.
4. Lower returns. Overall, we anticipate lower returns and higher volatility for
most financial assets than in the past decade.
6. Leverage an option. With rates likely to remain low, investors could also
consider utilizing leverage in the context of their financial plan.
7. Build your plan. We think the Liquidity. Longevity. Legacy. approach can
help you align your investments with your goals, enabling you to balance
the risks and opportunities of the decade ahead.
10. Adapt your business. Entrepreneurs also need to consider how to adapt
their businesses to the effects of demographic and technological change, and
potentially stiffer labor, trade, and environmental regulations.
Liquidity. Longevity. Legacy. disclaimer: Timeframes may vary. Strategies are subject to individual client goals,
objectives, and suitability. This approach is not a promise or guarantee that wealth, or any financial results,
can or will be achieved.
Foreword
Welcome to our Year Ahead 2020, UBS’s outlook on the coming year.
In what we call “The Year of Choices,” we offer our view on how to navigate
these markets. From the US presidential election to trade negotiations and
fiscal policy, political choices will increasingly shape outcomes. In the pages that
follow, we explain how we think these choices will play out, and how you can
mitigate the risks they pose to portfolios.
The underlying forces complicating political and economic choices will only
grow in importance over the longer term. In the decade to come, working-age
populations in developed countries will begin to shrink, and a less favorable
political backdrop could emerge for higher-income individuals. We also expect
significant environmentally and technologically led innovations to disrupt
existing norms in a deglobalizing world.
Yet investors will also enjoy ample chances to benefit from a “Decade of Trans-
formation” that will redefine our world. From game-changing technologies to
the forward-thinking companies driving the transition to a more sustainable
economy, opportunities will abound to invest in the ideas that shape the future.
The Decade of
Transformation
The trends shaping our
The Year of Choices world in the decade
Our outlook for 2020, ahead, and their
and answers to the top investment impact. Planning for the
questions facing inves- Investment views decade ahead
tors in the year ahead. Our views on the top
33
How to plan and
investment ideas in invest for the decade
9
major asset classes in to come.
2020.
23 45
13 Top questions
13 “What does the US election mean for my portfolio?”
18 “How do I invest in a protectionist world?”
20 “How should I invest in a late-cycle, low-yield world?”
23 Investment views
23 Equities
27 Fixed income
29 Currencies, commodities, alternatives, real estate
53 Effecting change
58 Appendix
58 2019 in review
59 Economic forecasts
To find out more about the Year Ahead 2020, visit ubs.com/year-ahead
The Year of
Choices
In 2019, global economic growth looks to
have fallen to a post-financial crisis low due
to slowdowns in the US, Europe, and China.
Although the labor market and consumption
remained relatively healthy, fixed investment
Mark Haefele
and trade growth weakened as the US-China Chief Investment Officer
trade conflict impacted business confidence. Global Wealth Management
outcomes: Russia
Brazil
Rest of the world
1. Stick or twist? 2019 3.1%
1.3
50
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
1.4
79%
We expect growth to bottom out A full 79% of investors think we are
entering a period of higher volatility;
in 4Q19 and 1Q20
66% think markets are driven more
Global real GDP growth, quarter-over-quarter, in %
by geopolitical events than business
4.0
fundamentals; and 58% regard invest-
3.5
3.0
ment returns as more out of their
2.5 control than in the past.
2.0 Source: UBS Investor Watch on the Year Ahead,
1.5 “Decisions, decisions,” 2 Volume 2019
1.0
0.5
0
1Q19 2Q19 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E
E = Estimate
Source: Haver, CEIC, national statistics, UBS, as of 11 November 2019
Plainpicture / DEEPOL
Democrat Republican
Technology regulation
The world’s five largest listed companies are
2.2 US technology firms – together they make
up 16% of the S&P 500 market value and 8%
Tech regulation is a potential risk of the MSCI All-Country World – and have
Performance of FAAMG (Facebook, Amazon, Apple, contributed around 15% to the performance
Microsoft, Google) stocks, S&P 500 with/without FAAMG
of the US market over the past five years.
250
Proving that internet companies are mono with the federal minimum wage and Social
polies is difficult; antitrust cases can take a Security payments probably rising as well.
long time to build and litigate; and presidents
cannot dismantle companies on their own. Proposals like a wealth tax are unlikely to be
passed without a sizable Democratic majority
Investors concerned about increased regula- in Congress, but a higher top income or capi-
tion could consider diversifying exposure by tal gains tax rate is more plausible.
shifting focus from the larger tech firms to
other companies benefiting from long-term Proposals for higher minimum wage and
digital transformation. For more, see page 49. social security payments, if enacted, would
also feed into our broader theme of choosing
Environmental legislation to add exposure to consumer rather than
The Trump administration has loosened business spending in 2020.
environmental regulations, and this trend
would likely continue in a second term, while Health reform
any Democratic president would almost cer- The Affordable Care Act (ACA) has been
tainly retighten them. weakened under President Trump. Democrats
still favor the ACA – Biden aims to preserve
Bigger policy changes such as the Green most of it, and build on it with a new govern-
New Deal are unlikely to pass if Congress is ment-run public insurance option. Warren
divided. However, the carbon-based energy advocates “Medicare for All,” which would
sector may well come under pressure from cost the US government about USD 32–33trn
measures to curb carbon emissions, and the over 10 years, although any such bill would
exploration and production subsector could be unlikely to pass without a Democratic
be affected if a President Warren followed supermajority in the Senate.
through on her pledge to ban fracking by
executive order, even if the legal status of
such a move is unclear.
Flexibility is key
By contrast, we would expect companies
connected to clean energy, clean air, carbon When it comes to tax planning, maxi-
reduction, and energy efficiency to perform mizing flexibility can be far more effec-
better under a Democratic administration, so tive than strategies that rely on accu-
they could offer a potential “hedge” against rate forecasts of tax rates. Many
the risk of more aggressive environmental investors are already building flexibility
legislation. simply by saving across a mix of tax-
able, tax-deferred, and tax-exempt
Redistribution accounts. When this is paired with a
A reelected President Trump would try to careful strategy in retirement, investors
make the personal tax cuts enacted in 2017 can effectively manage their tax liabili-
permanent. Under a Democratic administra- ties without compromising on meeting
tion, however, income tax rates for wealthy their goals if tax rates differ from
Americans would likely go up, in our view, expectations.
Gettyimages
Top questions
“How do I invest
in a protectionist
world?”
The trade dispute between the US and China has hampered business invest-
ment and hurt companies exposed to global trade. In the year ahead, volatility
among trade- and investment-dependent companies is likely to remain
elevated, with returns dependent on political choices. We therefore recom-
mend seeking domestic- and consumer-oriented investments, which should
deliver more reliable returns, while also looking for long-term beneficiaries
of the deep-seated US-China rivalry.
The move away from globalization is also In the face of deglobalization, investors
occurring beyond the US-China conflict. Brexit should globalize their own portfolios to miti-
is likely to result in greater frictions in UK-EU gate the risks of specific trade-related posi-
trade; Japan has taken steps to limit technol- tions, while also looking for the relative win-
ogy exports to Korea; and the US has threat- ners from the US-China rivalry. It will also be
ened to impose tariffs on European goods. important to stay nimble. With protectionism
Elsewhere, controls over foreign ownership on becoming a feature of the year ahead, trade-
national security grounds are becoming more exposed markets like Korea, Taiwan, and the
commonplace. Eurozone could rally markedly if an agree-
ment to roll back tariffs is reached.
2.5
160
1961–1970
Cumulative real GDP growth
1991–2001
140 1982–1990
1949–1953
Current expansion
100
0 30 60 90 120
Month of expansion
And for investors holding cash waiting for the –– Put writing. A put writing strategy might
right time to invest: be relevant for investors who expect range-
bound markets and higher volatility, for
–– Phasing. On average, investing cash depos- those looking to buy into market dips in a
its straightaway is the best option. Histori- disciplined way, or for those looking to
cally, for a US 60% stock, 40% bond port- diversify their sources of portfolio income in
folio, phasing in cash over 12 months a low-yield world. Writing put options gives
would have underperformed an all-at-once other investors the right to sell them a secu-
approach by an average of 4.4ppts. Still, rity at an agreed-upon price in the future, in
this opportunity cost may be preferable for exchange for a premium. If the market ral-
some investors, particularly if they are lies, the put writer would miss out on price
deploying a large lump-sum deposit, in gains, but would retain the premium. If a
which the potential cost of poor timing is sell-off occurs, the put writer would still
greater. These investors could set a schedule earn the premium, but would be obliged to
for deploying capital – including a plan buy the security at the agreed-upon strike
to speed up purchases if a dip-buying price (which could be higher than prevailing
opportunity presents itself – to reduce market levels).
opportunity cost while also managing the
risk of regret.
Scenario analysis
In a Year of Choices we do not recommend positioning in a way that is overly dependent on a
given scenario materializing. To identify opportunities and manage risks effectively, we seek to
understand the range of outcomes, probabilities, and potential market impacts.
Growth boost Trade deal / coordinated 10%–15% – S&P 500 total return: 5%–10%
stimulus – US 10-year yield: 3.0%–3.5%
– EURUSD: 1.20–1.30
Stable growth Limited deal / fiscal 50%–55% – S&P 500 total return: 0%–5%
stimulus – US 10-year yield: 1.75%–2.25%
– EURUSD: 1.15–1.20
Slowdown No deal / monetary 25%–30% – S&P 500 total return: –10% to –15%
stimulus – US 10-year yield: 0.75%–1.25%
– EURUSD: 1.10–1.15
Recession Trade escalation/ 10%–15% – S&P 500 total return: –25% to –35%
monetary stimulus – US 10-year yield: 0.25%–0.75%
– EURUSD: 1.05–1.10
Source: UBS
Investment views
Equities
Global equities have delivered posi- year, but we note the two-way
tive returns over the past 12 months uncertainty in our Year of Choices.
against a backdrop of slowing growth In this environment, we seek more
and falling interest rates. Our base reliable returns by focusing on
case, as we enter 2020, posits muted quality and yield, domestic exposure,
stock market performance for the and consumer spending.
Choose consumer
3.2
Global Services PMI Global Manufacturing PMI –– In the US, we overweight the consumer
Source: JPMorgan, UBS, as of 31 October 2019 discretionary sector, which should benefit
from relative strength in the US labor mar- –– In Asia, we focus on Chinese internet and
ket. In particular, we are attracted to strong 5G beneficiaries, which should gain from
brands with pricing power and companies consumer adoption of 5G smartphones.
aligned to the needs of millennial consum-
ers that should drive consumption trends –– Our least preferred global sectors
for years to come. include materials and information technol-
ogy, both of which are more exposed to
–– In Europe, we like European companies business than consumer spending.
exposed to consumer-driven spending in
emerging markets. We look for companies
that have, on average, 40% EM exposure,
which we believe should bode well for sales
and earnings.
Fixed
income
Bond yields fell sharply in the past year, and the outstanding supply of nega-
tive-yielding debt now totals as much as USD 12trn. We doubt yields will
move much lower, but also see little to suggest that the yield environment will
improve. Low yields might tempt investors to turn to riskier instruments. But
corporate credit fundamentals at some high yield companies are showing
signs of deteriorating. We recommend choosing fixed income investments in
“the middle lanes,” avoiding the safest and the riskiest issuers, and looking
for sustainable alternatives.
EM Sovereign (USD)
Currencies,
commodities,
alternatives,
real estate
Currencies GDP growth, investment, productivity, and fis-
cal stimulus are likely to find their currencies
Choose barbells in demand. Currently, we like the Indian rupee
over greenbacks and Indonesian rupiah.
3.4
Gettyimages
The Decade of
Transformation
The past decade generated excellent returns across financial assets, amid
unprecedented monetary stimulus.
A Decade of Transformation now beckons. more sustainable products and services is only
Working-age populations will begin to shrink just beginning, and could prove to be the
in high-income countries. We expect the most exciting and durable growth opportunity
trend toward deglobalization to gain momen- of the next 10 years.
tum, and foresee a less favorable political
backdrop for high-income individuals. Major How to balance the risks with the opportuni-
environmental and technological movements ties in the decade ahead? We think a robust
and advances are likely to disrupt existing financial plan is an essential starting point.
norms. On the whole, we anticipate the com- On page 45, we detail our Liquidity. Longevity.
ing decade will be a more challenging one for Legacy. framework, which can help you align
investors and business owners than the past your portfolio with your financial goals while
one was. helping to steer you clear of common invest-
ing pitfalls. It enables you to target longer-
Though such a transformation can be uncom- term trends (see page 49) with the confidence
fortable, it will bring opportunities with it too. that your near-term needs have been
Like globalization, deglobalization will also addressed.
mean winners and losers. Demographic
change will boost emerging markets and Finally, for entrepreneurs, we detail how the
sectors like healthcare. The technological remaking of the world taking place might
revolution will present myriad options for affect your company, and reveal what entre-
investment in areas such as 5G, artificial intel- preneurs within our UBS Industry Leader
ligence, cloud computing, and genetic thera- Network* are doing to prepare their own
pies. Meanwhile, the shift in consumer prefer- firms for a Decade of Transformation.
ences and government regulation toward
* The UBS Industry Leader Network is a global group of UBS clients and prospects who are private business
owners and executives. Their views may differ from those of UBS.
5G connections
2019 2030 projection
10 billion 46 billion
Source: Ericsson
7.5 43
33
4.3
2020
Retiring Deglobalization
Wealth “Monetary
Smart everything redistribution Policy 3”
Environmental
action Aging bull EM equities
to
Six key
transformations
In a Decade of Transformation, we 87%
identify six key trends that we think Surveyed investors identified an aging
population (87%), smart technology
will play the biggest role in shaping
(86%), increased automation (85%),
outcomes for investors over the artificial intelligence (85%), and
coming 10 years: deglobalization, diminishing natural resources (82%)
technological disruption, wealth as the key “mega trends” likely to
change the world in the d ecade
redistribution, “monetary policy 3,”
ahead.
demographic change, and environ-
Source: UBS Investor Watch on the Year Ahead,
mental action. “Decisions, decisions,” 2 Volume 2019
boundaries of what is considered possible. has approached that held by the bottom 90%
More accessible gene-editing advances might for the first time since the 1930s. Causes
even cause us to question what it is to be include lower corporate tax rates, automation,
human. The upside is higher long-term increasingly global supply chains, and the rise
growth, aggregate improvements in living of capital-light superstar firms. In the decade
standards, and large gains for investors in ahead, we expect wealth concentration to
fast-growing industries (see page 49). The transform into wealth redistribution. Left-
dangers include disruption to existing busi- leaning parties in countries like the US and
ness models, problems caused by a potential the UK are proposing increasingly radical pre-
fracturing in global technological standards scriptions for addressing income and wealth
(see Deglobalization), and the social and inequality. Although voters in the months to
political consequences of technological unem- come will provide an indication of whether
ployment. McKinsey estimates that up to wealth concentration has yet hit its political
800 million jobs could be lost worldwide by limits, investors should prepare for some com-
the end of the decade as a result of techno- bination of higher taxation, greater regula-
logical progress. While such forecasts are tion, and antitrust measures over the next
imprecise, this trend has already built political decade. Meanwhile, policies such as higher
momentum for policies such as universal basic minimum wages and social security outlays
incomes, and could yet have further political (potentially funded by a Monetary Policy 3)
consequences (see Wealth redistribution). could support companies exposed to con-
sumer spending.
3. Wealth redistribution. Worldwide, the
share of economic output going to labor is 4. “Monetary Policy 3.” The role of mone-
close to a multi-decade low. In the US, the tary policy expanded in the 2010s. It stepped
percentage of wealth owned by the top 0.1% beyond the traditional bounds of interest rate
4.2 4.3
4.4 4.5
70 800,000 4,000,000
60 3,000,000
600,000
50 2,000,000
400,000
40 1,000,000
200,000 500,000
30
0 0
20
1970 1978 1986 1994 2002 2010 2019 1990 2000 2010 2020 2030 2040 2050
High-income countries (le scale)
Source: Bloomberg, UBS, as of 30 April 2019 Low-income countries (le scale)
Middle-income countries (right scale)
Source: United Nations, Department of Economic and Social Affairs,
as of 11 November 2019
4.6
to mitigate the risk of social unrest or worsen-
ing global migration challenges. Meanwhile,
Climate change regulation is
we expect demographic shifts to promote
consumer preferences for sustainable prod-
increasing
Sum of global executive and legislative actions
ucts (see Environmental action). In the next
decade, the millennial generation – which 2,000
Geothermal
Hydro
Solar
photovoltaic
Concentrating
solar power
Offshore wind
Onshore wind
Our return
assumptions
Overall, we expect the Decade of Transformation to generate lower returns
and spur higher volatility for most financial assets than in the past decade.
Investors targeting a given level of return in well-diversified portfolios may
need to increase their allocation to riskier assets such as equities, and reduce
their allocation to assets like bonds. Equally, investors targeting a given level
of risk may need to accept lower, or even negative, returns as a necessary
price of that safety.
69% Cash
We expect short-term interest rates to remain
of investors are optimistic about
low relative to historical norms, albeit some-
investment returns over the next
what higher than the average of the past
decade. Optimism is highest in
decade and the levels prevailing today. Low
Latin America (83%) and lowest
unemployment, shrinking workforces in
in Switzerland (56%).
wealthy nations, and the effects of deglobal-
Source: UBS Investor Watch on the Year Ahead,
“Decisions, decisions,” 2 Volume 2019 ization could push wages higher, but the
effects of technological progress and well-
anchored consumer price expectations should
39% keep inflation low overall and close to central
of investors believe equities will be bank targets. Meanwhile, an ongoing surplus
the best performing asset class over of global savings and an increasingly capital-
the next decade. Optimism about light economy are likely to translate into real
them is highest in the US (57%) and money market rates that we expect to con-
lowest in Switzerland (10%). verge to only around 0.5% in the US and
Source: UBS Investor Watch on the Year Ahead, below zero in Europe.
“Decisions, decisions,” 2 Volume 2019
Bonds Commodities
Our estimates for bond returns stem from We estimate around 4% annualized nominal
our view that interest rates will remain broadly returns for broadly diversified commodity
low. Overall we forecast nominal returns of indexes in USD terms. Around half of this
about 3% a year in USD high grade bonds. return stems from returns on cash held as
Within USD high yield credit, we see default collateral against commodity futures posi-
rates averaging 3.5% annually, close to the tions. The rest comes from the long-term
long-run norm, and producing total nominal equilibrium level of commodity prices being
returns around 5% yearly for USD high-yield higher, in our view, than current levels. The
bonds. volatility of the asset class suggests to us that
investors should consider broad commodity
Equities exposure as a tactical, rather than a strategic,
Returns for the most part are likely to be investment.
much lower than in the last decade – we
expect 4%–6% nominal returns per year in Alternatives
developed markets in local currency terms. Funds of hedge funds are expected to deliver
Although valuations are generally below long- around 5% annual returns to investors, a
term averages (with the exception of the US ccording to our estimates. This forecast is
and Switzerland), the effects of modest global somewhat lower than in the past, and
economic growth and contracting profit mar- reflects the effect on hedge funds of lower
gins are likely to weigh on returns. In particu- rates on cash and fixed income. We expect
lar, aging populations will contribute both to risk parity funds to return around 7% a year.
slower growth and to greater competition for Although the fall in bond yields hurts such
labor, while deglobalization and potentially funds’ prospects, the commensurate drop in
higher corporate taxes could also pressure interest rate expectations also leads to lower
profits. borrowing costs. It is also worth noting that
the difference between expected equity
Nonetheless, equities should still return more returns and borrowing costs has risen over
than most other asset classes. the past year. In private markets, we antici-
pate returns of 8%–10%, higher than in
Within equities, we expect emerging markets public markets due to the effects of illiquidity
to reverse their underperformance of the premiums, manager skill, and greater access
past 10 years and outpace their developed to niche opportunities.
counterparts. We estimate roughly 9% annual
returns in USD terms thanks to the better
potential for long-term profit growth. EM
volatility is likely to remain high, however,
so investors should prepare for periods of
underperformance.
65% 5.1
5.2
100,000
10,000
Return
1,000
100
10
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Risk
Note: Shaded areas indicate when the “buy low, sell high” strategy would have been invested. The “buy low, sell high” strategy follows a simple
rule: buy stocks aer a 10% drawdown, sell when stocks hit another all-time high.
against the risks of a Decade of Transforma- Investors may overestimate their own
tion will be diversification. Deglobalization,
regions’ prospects
technological disruption, tax policy changes,
In %
monetary policy mistakes, an aging popula-
70
tion, and climate change will all be felt more 60
50
keenly in individual countries than at a 40
global level. To mitigate these risks, investors 30
20
will need to diversify portfolios in assets 10
0
around the world, and overcome sometimes APAC US Europe Latin America
deeply rooted preferences for investing close Domestic respondents Global respondents
to home. Source: UBS Investor Watch on the Year Ahead,
“Decisions, decisions,” 2 Volume 2019
Top longer-term
investments
Investors can profit in the Decade of Transformation if they can identify and
invest in secular winners in the context of a robust financial plan. We zero
in on market segments where we see the greatest potential, in the key areas
of digital transformation, genetic therapies, and water scarcity.
The digital revolution will remake numerous Enabling technologies. With businesses
business models. Tech disruptors and incum- around the world turning to 5G, AI, and cloud
bent players alike will use newly developed computing, the companies that provide these
hard- and software to transform the world services and develop technologies related to
around us. Enabling technologies such as 5G, them are likely, in our view, to enjoy increasing
Strong growth ahead for enabling I-assisted diagnostic imaging will help target
A
technologies and deliver care, improve diagnostic effective-
Figures in USD bn ness, and transform the healthcare industry.
Genetic therapies
demand in the decade ahead. For example, Genetic therapies represent a paradigm shift
Asia, propelled by key markets China and in medicine. They harbor the potential to rev-
South Korea, will account for more than 50% olutionize healthcare delivery and disrupt the
of global 5G capital expenditure and almost biopharma industry. Such therapies – includ-
75% of global 5G smartphone shipments in ing replacing and editing genes or entire cells
2020, according to our estimates. The region’s – hold out the promise of curing chronic
hardware and semiconductor supply chains diseases with a single treatment, improving
should get a 5G boost as soon as next year. outcomes while reducing or even eliminating
out-patient costs.
E-commerce. The e-commerce industry, by our
estimates, is set to average 15%–20% annual
growth in the decade ahead. This a dvance will
be fueled by AI and other technologies like 6.1
augmented and virtual reality. Greater person-
alization and more efficient delivery systems The number of gene-therapy products
will result, along with enhanced user experi- in development is growing
ences such as simulation and visualization. Active trials for gene therapy products
100
Fintech. The financial sector’s push into digi- 80
tal services is centered on cloud computing 60
and AI. Growth in the decade ahead in areas 40
like mobile payments, insurtech, and online 20
credit could well be rapid.
0
2004 2006 2008 2010 2012 2014 2016 2018
Healthtech. Healthcare will become increas- Note: Trials for gene-therapy products using adeno-associated
virus (AAV) vectors, the most common type of vector used for in vivo
ingly digitized. New applications like popula- gene therapy.
tion health software, tele-medicine, and Source: Bernstein Research, clinicaltrials.gov, as of 31 October 2018
Of course, as ever in drug development, Investors can also potentially benefit from
idiosyncratic risk is high. So we recommend new environmental legislation targeted at
investing through a diversified portfolio of reducing ocean pollution. The International
firms pioneering genetic therapies to manage Maritime Organization is introducing new reg-
the risks associated with clinical failure. ulations to reduce the environmental impact
of ballast water. Used to improve the stability
of large ships, ballast water, after its discharge
Water scarcity on arrival, can introduce damaging, non-
native species into aquatic ecosystems. We
estimate that 50,000–70,000 ships worldwide
72% still need to be fitted with water treatment
systems by 2024, at an average cost of
of investors listed “clean water and
sanitation” as the most pressing issue EUR 500,000 per ship. As a result, we expect
facing the world. ballast water treatment to be the fastest-
growing part of the overall water market,
Source: UBS Investor Watch on the Year Ahead,
“Decisions, decisions,” 2 Volume 2019 with annual growth rates in excess of 10%
forecast.
0 5 10 15 20
Effecting change
A Decade of Transformation will require investors to adapt to change. But
they can also use their capital to help achieve and shape it as well. Many of
the UN Sustainable Development Goals have large-scale capital requirements
that we believe offer compelling investment opportunities for private investors
to earn attractive returns, while contributing to goals ranging from eliminating
poverty and lessening inequality to ensuring access to clean water and quality
education. By replacing traditional with sustainable investments, investors
can position their portfolios to participate in the most significant trends over
the next decade.
alternative protein sources and waste man- themselves. Examples include influencing the
agement have scope to effect positive change behavior of a boat manufacturer whose waste
and deliver attractive financial returns. The plastic ends up in oceans, or of a financial
investments can be made via thematic public services firm whose inflexible working hours
equity funds that buy company stock, or make it harder for women to reach leadership
through private equity or debt. In private mar- positions. Engagement-focused investors
kets, we see particular opportunities to fund could also advocate improving the standards
earlier-stage companies developing technol- of firms by, for example, encouraging the
ogy for carbon capture and utilization, as well reduction of the use of antibiotics involved in
as food companies creating plant-based meat factory farming, or pushing for safer work
and cheese substitutes to replace carbon- conditions in the garment industry. Engage-
intensive animal farming. ment as a strategy for effecting change has
gathered momentum in recent years, with
Invest in the leaders more ESG data providers adding information
Investors can also place funds with companies on proxy voting, asset managers growing
leading the way in addressing environmental, their stewardship teams, and shareholder
social, and governance (ESG) challenges in coalitions increasing. For example, the
their industry. We believe such firms are likely Climate Action 100+ coalition represents over
to see attractive returns due to their leader- USD 35trn in AUM and has had numerous
ship in key trends. Examples include health- successes with the 161 companies it engages
care companies making medicines affordable with. Over 70% have made long-term emis-
in emerging markets, IT companies reducing sions reduction commitments, including high
energy usage and thereby shrinking the car- profile success with major resource-intensive
bon footprint of their data centers, and indus- companies.
trial firms implementing innovative practices
that improve worker efficiency and safety.
Other ESG leaders include consumer firms
A sustainable Legacy
redesigning products and packaging to mini-
mize waste, offering, for instance, liquid laun- Using capital to effect long-term posi-
dry detergent refills to cut down on plastic. tive change can be a way for investors
to leave a legacy that spans beyond
Support firms with room to improve personal wealth. Ideas such as funding
An “ESG engagement” approach identifies disruption, investing in ESG leaders, or
firms with the potential to improve ESG stan- transforming underperforming compa-
dards and uses investor influence to promote nies could be themes suitable for either
best practices. In doing so, it has a positive Longevity or Legacy strategies.
impact on sustainability and potentially on the
long-term business prospects of the firms
Transforming your
business
Taking advantage of opportunity in executives and entrepreneurs, we
the Decade of Transformation while surveyed private business owners and
mitigating its risks could necessitate executives in our UBS Industry Leader
changes in the way entrepreneurs Network* to offer you insights into
think about their businesses. In addi- how they are tackling these trends.
tion to our dedicated research for
* The UBS Industry Leader Network is a global group of UBS clients and prospects who are private business
owners and executives. Their views may differ from those of UBS.
8.1 8.2
Millennial spending power looks set US tariffs are at their highest levels
to rise in recent history
in USD trillions Average tariff rate for all imports, in %
25 60
20 50
40
15
30
10
20
5 10
0 0
2020 2025 2030 2035 1800 1840 1880 1920 1960 2018
Baby boomers Millennials Source: Deutsche Bank, as of 31 December 2018
Generation X Generation Next
* The UBS Industry Leader Network is a global group of UBS clients and prospects who are private business
owners and executives. Their views may differ from those of UBS.
* The UBS Industry Leader Network is a global group of UBS clients and prospects who are private business
owners and executives. Their views may differ from those of UBS.
2019 in review
Yields are currently 1.94% and –0.27%, 3.0 3.1 3.2 3.3 3.4 3.5 3.6
respectively. 2019 last Nov. 3.6%
US
Japan
–– Stocks. Our base case for equity returns Eurozone
was for mid single-digit returns amid China
India
greater volatility. Since publication of Year
Russia
Ahead 2019, global equities have returned Brazil
around 15%. Year-to-date returns have Rest of the world
2019 now 3.1%
been higher given the violent December
2018 sell-off, and with the MSCI AC World Reduction Addition
returning 22%. Source: Haver, CEIC, national statistics, UBS, as of 11 November 2019
Economic forecasts
E= Estimate
Source: UBS, as of 11 November 2019
Commodities
Spot Jun 20 Dec 20
Brent crude oil (USD/bbl) 61.7 55.0 60.0
WTI crude oil (USD/bbl) 56.4 50.0 55.0
Gold (USD/oz) 1,465 1,600 1,600
Silver (USD/oz) 16.9 19.5 19.0
Copper (USD/mt) 5,924 6,000 6,300
Currencies
Developed markets
Spot Jun 20 Dec 20 PPP
EURUSD 1.10 1.15 1.19 1.28
USDJPY 109 102 100 75
GBPUSD 1.28 1.34 1.38 1.56
USDCHF 0.99 0.96 0.92 0.93
EURCHF 1.09 1.10 1.10 1.20
EURGBP 0.86 0.86 0.86 0.82
AUDUSD 0.68 0.71 0.68 0.67
USDCAD 1.32 1.33 1.29 1.21
EURSEK 10.7 11.2 10.8 9.8
EURNOK 10.1 10.2 10.2 10.6
Emerging markets
Spot Jun 20 Dec 20
USDCNY 7.0 7.0 7.0
USDIDR 14,067 14,000 13,900
USDINR 71.5 70.0 69.0
USDKRW 1,166 1,150 1,130
USDRUB 64 63 62
USDTRY 5.8 6.3 6.7
USDBRL 4.2 4.1 4.1
USDMXN 19.1 19.8 20.5
Impressum
Editor in Chief
Kiran Ganesh
Supervisory analyst
Mark Boehme
Editorial deadline
12 November 2019
Publishing date
19 November 2019
Design
CIO Content Design
UBS Switzerland AG
Cover photo
Unsplash / yue su
For more background on emerging markets generally, see the CIO GWM Education Notes “Investing in
Emerging Markets (Part 1): Equities,” 27 August 2007, “Emerging Market Bonds: Understanding Emerg-
ing Market Bonds,” 12 August 2009 and “Emerging Markets Bonds: Understanding Sovereign Risk,” 17
December 2009.
Investors interested in holding bonds for a longer period are advised to select the bonds of those sover-
eigns with the highest credit ratings (in the investment-grade band). Such an approach should decrease
the risk that an investor could end up holding bonds on which the sovereign has defaulted. Subinvest-
ment-grade bonds are recommended only for clients with a higher risk tolerance and who seek to hold
higher-yielding bonds for shorter periods only.
Nontraditional Assets
Nontraditional asset classes are alternative investments that include hedge funds, private equi-
ty, real estate, and managed futures (collectively, alternative investments). Interests of alternative
investment funds are sold only to qualified investors, and only by means of offering documents that include
information about the risks, performance and expenses of alternative investment funds, and which clients
are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is
speculative and involves significant risks. Specifically, these investments (1) are not mutual funds and are not
subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and
investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other spec-
ulative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid invest-
ments; there is generally no secondary market for the interests of a fund, and none is expected to develop;
(5) interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer; (6)
may not be required to provide periodic pricing or valuation information to investors; (7) generally involve
complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to
high fees, including management fees and other fees and expenses, all of which will reduce profits.
Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective inves-
tors should understand these risks and have the financial ability and willingness to accept them for an ex-
tended period of time before making an investment in an alternative investment fund, and should consider
an alternative investment fund as a supplement to an overall investment program.
In addition to the risks that apply to alternative investments generally, the following are additional risks
related to an investment in these strategies:
• Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may in-
clude risks associated with investing in short sales, options, small-cap stocks, “junk bonds,” derivatives,
distressed securities, non-US securities and illiquid investments.
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For example, not all managers focus on all strategies at all times, and managed futures strategies may
have material directional elements.
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investment trusts. They involve risks associated with debt, adverse changes in general economic or local
market conditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associ-
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for favorable treatment under the federal tax laws.
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be made on short notice, and the failure to meet capital calls can result in significant adverse conse-
quences including, but not limited to, a total loss of investment.
• Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States
should be aware that even for securities denominated in US dollars, changes in the exchange rate between
the US dollar and the issuer’s “home” currency can have unexpected effects on the market value and liquid-
ity of those securities. Those securities may also be affected by other risks (such as political, economic or
regulatory changes) that may not be readily known to a US investor.
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