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Cash is still not the answer, despite looming economic uncertainty, according to UBS.
“We believe that investors can keep their investment strategies on track for the long term even in the current uncertain times without retreating to cash,” UBS global chief investment strategist Mark Haefele said in a note to clients Wednesday.
Economic uncertainty reigns as the trade war between the U.S. and China has placed increasing strain on the global economy, prompting policymakers to respond with interest rate cuts and stimulus measures to bolster growth. Investors are searching for safe havens amid the uncertain landscape; however, Haefele said a retreat into cash is not the solution.
“A high allocation to cash over the longer term increases the risk that investors will fail to achieve their financial goals,” he wrote.
Instead, the firm recommends a broad range of defensive strategies to protect long-terms gains, such as high and sustainable dividend stocks and gold.
“Dividend investing is a defensive investment style that generates regular cash flows for investors and tends to outperform when markets are volatile,” said Haefele.
Dividend stocks tend to perform well in low interest rate environments and are more stable than earnings, he added.
Gold is a historically safe trade when rates are low, stocks are volatile and the dollar is weak. UBS expects the precious metal to breach the $1,600 level in six months and said adding gold can provide stability to investor portfolios.
Haefele also said there are opportunities in secular trends as well as put options that allow investors to sell at designated price points.
“Put-writing strategies tend to perform better in sideways equity markets, when investors benefit more from regular cash flows than from directional exposure,” he said.
— with reporting from CNBC’s Michael Bloom
