Expert advisory skills and a good relationship are best complemented by in-depth financial and market knowledge, argues Ali Janoudi
Almost 65 percent of investors spend a whole hour every day studying the markets and financial issues — and this figure is on the rise.
This puts considerable demands on client advisors, as they must always be able to provide their clients with precise information about global events and all asset classes.
Expert advisory skills and a good relationship are best complemented by in-depth financial and market knowledge.
Therefore, exclusive know-how is a decisive competitive advantage, and professional training of client advisors such as UBS’s Wealth Management Diploma is becoming much more important.
Closing information gaps
Financial markets cannot be expected to rise steadily — for example, bonds’ return potential has already been largely exhausted.
The shift of free funds into companies has buoyed stock markets considerably in recent years, with many investors again missing the right moment to re-enter the market.
Hence, in-depth knowledge is required to invest successfully. To provide clients with credible advice and offer them profitable investment solutions, banks increasingly need to have their own global research networks, which closely follow local events.
Therefore, a successful investment strategy requires global diversification and a focus that extends well beyond the domestic market.
Professionalising investment process
A global investment house view — at UBS the clear position taken by the bank’s chief investment office led by Alex Friedman regarding markets and investment categories — is an important precondition for the provision of professional advice.
Economists, analysts and investment experts provide analysis of and insight into the relevant markets and investment categories to form a nuanced market view.
This house view is also critically examined on a regular basis by external specialists to prevent the bank from developing a blinkered view of affairs. However, an investment house view alone is not enough.
The bank’s own view must also be professionally reflected in its long-term strategic asset allocation (SAA) so that investors can get added value.
The SAA accounts for around 80 percent of a portfolio’s returns. It needs to be flexible so that tactical action can be taken in response to short-term market events.
These, along with the careful selection of investment vehicles, are the main ingredients for a well-thought-out portfolio.
Raising quality standards
Volatile markets and currency fluctuations have become the norm today, and can quickly alter the weightings within a portfolio.
This results in the investment’s targeted risk profile deviating from its agreed limits without any shifts within the portfolio.
Equally, the risk characteristics of individual asset classes can quickly change — until a few years ago, government bonds were seen as a safe investment, but many now contain new and unexpected risks.
With a view to providing best-in-class service quality, UBS systematically reviews its clients’ portfolios on a daily basis based on a variety of risk metrics, while actively providing the clients with targeted investment recommendations.
Investment aspect to consider now
We favour relative value and equity long short strategies in 2013.
This view is based on our belief that the current environment is conducive to a bottom-up fundamental approach, as average cross-correlation between asset classes continues to decline.
A scenario of increasing performance dispersions should reward equity long short managers as it increases their opportunities to identify and trade mispriced stocks.
We expect this backdrop to remain in place over the course of the year.
Declining correlation is also good news for relative value credit managers.
It increases the likelihood of generating performance on both the long and short sides, particularly given the strong spread tightening and with corporates looking to re-leverage.
Managers are expected to identify very compelling risk-reward investments on the short side as well.
*Ali Janoudi is the head of wealth management MENA and Group CEO MENA at UBS AG.