Investors have kept their cash piles high even after markets and the economy strengthened in recent months, as many search — or wait — for the right buying opportunity in stocks, a UBS Group survey found.
Cash represents 22% of individual investors’ portfolios globally, down just three percentage points since September, according to UBS’s quarterly investor sentiment survey. But 41% of investors are considering increasing their exposure to stocks in the next six months, with interest in transformative technology, sectors poised to do well in the economic expansion and sustainable investing.
“Clients are looking to engage,” Mike Ryan, a divisional vice chairman at UBS Global Wealth Management, said in a phone interview. “People now are certainly growing more optimistic” after being “whipsawed” by the uncertainty of the pandemic and then sharp market rebound that followed massive government intervention.
UBS polled 2,850 investors globally, with at least $1 million in investable assets, from March 30 to April 18. The survey included investors who are not clients of UBS UBS, -1.04%, according to a spokesperson for the Swiss bank.
Investors’ confidence has picked up faster in the U.S. than any other region when it comes to the economy, with UBS’s survey finding that U.S. investors are the most upbeat globally. The rollout of the COVID-19 vaccine is helping to fuel positive investor sentiment, according to Ryan.
Seventy percent of U.S. investors are optimistic about their local economy, rising from 52% three months ago, the survey found.
“The vaccine was a game changer,” said Ryan. “It was a confidence booster.”
Seventy-one percent of U.S. investors expressed optimism about the stock market, up from 59% three months ago. The U.S. stock market has risen to record levels this year, with the S&P 500 SPX, -0.02% and Nasdaq Composite COMP, -0.34% reaching new highs this week amid earnings season.
While 47% of investors globally plan to leave their portfolios unchanged over the next six months, those who are considering adding stocks cited technological transformation, diversification in the recovery and sustainable investing as driving themes, according to UBS.
Ryan explained that investors are looking beyond the current business cycle and toward transformative technologies such as health-care tech, fintech or the application of 5G, while also gravitating toward “ESG-friendly investments” that consider environmental, social and governance criteria.
They’re focused as well on diversifying into areas that initially lagged during the pandemic — such as consumer discretionary, energy, industrials and financial services — but can “carry the expansion now and extend the rally,” said Ryan.
Yet with a strengthening economy comes inflation concerns, particularly with the “powerful” mix of fiscal stimulus and the Federal Reserve’s accommodative monetary policy, he added.
UBS found that 61% of U.S. investors expect inflation to rise over the next three years, the highest finding of any region. Globally, about half of the investors surveyed are “very concerned” that too much inflation will hurt their cash holdings, with 26% being “somewhat concerned.”
Too much inflation would prompt them to move out of cash, according to UBS. Forty-one percent of investors would increase their holdings of stocks in such a scenario, while 31% told UBS they would add to their real-estate positions.
“One of the things I think they rightly recognize is that, historically, equities have been a better long-term hedge against inflation,” said Ryan. While each investor will have a different situation, UBS considers a cash allocation of around 5% more typical over the long term, he said.
Investors’ top reasons globally for keeping cash levels high include “waiting for the right investment,” desiring an emergency fund and protection against a downturn, according to the UBS survey. Some investors are searching for “clearer signs” that another coronavirus outbreak will be avoided and the economic expansion will be “durable” even as government policy begins to moderate, Ryan said.
“It may well be that they’re waiting for a little bit of a pause or correction,” he added. “Some clients are looking for opportunities around a market pullback.”