UBS executive director and head of investment strategy, Tracey McNaughton, said “event risks” have pushed fund managers towards cash and away from equities for the short term.
“I suspect for the next three or four months, volatility will be with us,” she said.
Ms McNaughton marked the Greek crisis as an issue incapable of being resolved, and one that reinforces UBS’ short-term strategy.
“At the moment for Greece we’re in the eye of the storm.
“Once we see some subsidence of the Greek issue, then we will start to think about reallocating our European equity exposure,” Ms McNaughton said.
In the event of a Grexit, European equities are likely to be a safer asset class, she said.
July 20 will be a key date for Greece as its $3.2 billion bond repayment to the European Central Bank is due – a repayment where they will struggle to come up with the liquidity, Ms McNaughton said.
The imminent rate hike by the US Federal Reserve is another issue UBS is watching.
“In our view the Fed are going to begin their lift off with interest rates in September, but the market was far more complacent than that and expected the first rate rise to come in December,” Ms McNaughton said.
“Q1 data will bounce back and cause the market to move up and there will be some volatility and dislocation.
“It was for those reasons that we decided to significantly de-risk our multi-asset portfolios,” she said.
At the beginning of April – for the UBS Dynamic Alpha Strategy Fund – typical allocation included 40 per cent equities and minus 20 per cent cash.
Today, however, the fund boasts 10 per cent in equities and 40 per cent in cash, Ms McNaughton said.
UBS is not the only fund manager pulling back equity allocations. AMP Capital is also underweight in equities at present.
Ms McNaughton explained that the change in allocation is a “near term situation, this is not going to be our portfolio going forward”.
“We still are cautiously optimistic on risk assets, and the reason we are still optimistic in the medium term is that central banks are supporting growth and risk asset markets,” she said.
