US Stock Market: A checklist to prepare investment portfolio for a post-pandemic world

The reflation phase of the recovery will be characterized by high growth, rising inflation, low-interest rates, and persistent volatility.

Amidst the Covid-19 pandemic, the vaccination programme in the developed economies of the world is throwing up some promising results. With the focus back on economic growth, the rising corporate earnings backed by robust demand are expected to reflect in the value of shareholder’s holdings. The stock market is often considered to be the reflection of the economic picture of a certain period ahead in time.

The Covid-19 has impacted several sectors of the economy and, therefore, as an investor, you might have to give your portfolio a re-look. The winners of tomorrow, i.e the sectors with greater potential in the changing world, need to be there in your portfolio today.

UBS Chief Investment Office, a firm providing institutional quality advice to private wealth clients has come out with a checklist to help investors prepare portfolios both tactically and strategically for the new market environment.

In its report, UBS Chief Investment Office identifies the big change that is expected to shape the economies going forward. “As global COVID-19 infection rates drop, the world economy is set to bounce back. We think this ‘reflation’ phase of the recovery will be characterized by high growth, rising inflation, low-interest rates, and persistent volatility. Against this backdrop, we recommend to position for reflation, think about the hunt for yield, and try to use volatility to invest and protect.”

According to UBS Chief Investment Office, here is how you can review your portfolio to make sure you’re positioned for a post-pandemic world:

Checklist 1

Are you positioned for reflation?

Reflation beneficiaries
Re-opening winners
Select commodities

Checklist 2

Have you thought about the hunt for yield?

Dividend stocks
Yield opportunities in Asia
Private credit
Borrowing
US high yield
Swap bonds for synthetics

Checklist 3

Are you taking advantage of volatility?

Generating yield
Asymmetric exposure to markets
Adding exposure to hedge funds
Buying on dips

Checklist 4

Are you seeking an opportunity in Asia?

China and Asia equities
Disruptive themes in Asia

Checklist 5

Are you positioned for secular growth?

The Next Big Thing
Future of humans
Investing in digital subscriptions
Private markets

Checklist 6

Is your portfolio capturing sustainable growth?

Be selective in greentech
Be diversified across sustainable asset classes
Look beyond the ‘E’ in ‘ESG’

Global economic activity is poised to bounce back from the pandemic, at the same time as central bank and fiscal stimulus should remain substantial. All of this should help real GDP in 2022 be higher than in 2019, by 9% in the US, 3% in the Eurozone, and 18% in China.

Investors should position for reflation, a phase in the recovery in which both growth and inflation rise sharply. In this environment, we favor reflation beneficiaries like financials and energy, both of which are relatively cheap, benefit from moderately higher bond yields, and offer catch-up potential versus developed market stocks.

The so-called “re-opening winners,” including developed market small- and mid-cap stocks (over large-caps, in particular), and stocks in our “21 for 21” basket, consisting of companies in sectors like automotive, aerospace, energy, materials, and financials will hold potential.

Finally, as beneficiaries of faster growth and as a hedge against persistent inflation, investors should consider select commodities in their portfolio. “We like oil (as demand recovers and inventories decline), copper (extensively used in renewable energy systems as governments work toward a green recovery), and palladium (a winner from the recovery in car manufacturing and sales),” adds UBS Chief Investment Office in its report.