With assets of $1.7 trillion under management at the end of 2012, Swiss bank UBS is the world’s largest wealth manager, leaving behind US giants Bank of America and Wells Fargo. The bulk of UBS’s wealth management business comes from North America and Western Europe, according to the international press, but the bank’s Central and Eastern European division is growing.
The minimum limit for opening a wealth management account at UBS starts from a few thousand euros and can exceed $1 million, depending on what services are provided to the wealthy client.
Cash is refuge of wealthy clients
Irrespective of whether they have hundreds of thousands or millions of dollars in their accounts, millionaires have become much more cautious following the crisis. They now hold a significant portion of their wealth in cash rather than take risks, explains Rolf Ganter, analyst and executive manager of UBS’s wealth management research division.
“Many of UBS’s rich clients have become more cautious after the financial crisis and hold a large portion of their wealth in cash – It can account for 30-40% of the portfolio, which is a high ratio.”
In the past two years equity markets have seen a strong rise, but many clients stayed away from equity because it is risky.
However, this summer interest rates on government bonds rose and some clients for the first time felt what it was like to lose money after investing in bonds, although such assets are considered risk-free.
As a result, some are now looking at shares whose dividend yield can sometimes be higher than the bond yield.
“For instance companies such as Nestle and BASF have a dividend yield of 3-4% per year, above the yield brought by government bonds in the eurozone,” the analyst says.
Investments in equity
The analyst recommends investors to go on and invest in equity, especially in shares of US and European companies with stable financial results and with high dividend yields.
“Keep away from government bonds because countries have unsustainable debt levels and will find it increasingly difficult to meet their bond payment requirements,” the analyst says.
The UBS recommends investors to allocate the biggest investments for shares.
Although US stock exchanges, as well as European ones, such as the German bourse, are at historic highs, the UBS analyst does not believe equity markets are in a bubble.
He says listed companies continue to see profit and revenue rises, and that these lead to rises on equity markets. He also notes that from a historic perspective, companies’ evaluations are still good and that the alternative, the bond market, is looking bad.
“So shares are our favorites, supported by strong growth in companies’ revenues. In particular the US share market, but also the European market, where we are selective and looking in particular at companies that have a high dividend yield, in some cases above the yield brought by bonds.”
Rolf Ganter has been working at UBS for almost 15 years, and specializes in the equity market and in the global auto sector.
In order to put together analysis reports and investment recommendations, Rolf Ganter meets with managers of over 100 major companies every year.
Asked how these managers see the recovery of European economies, Ganter says European managers have mixed views about the evolution of the European economy. The general opinion is that the worst is over, with most executives expecting a slow recovery.
The UBS analyst covers the auto sector and is familiar with the European success of Romanian brand Dacia.
“In 2001 Dacia used to sell around 26,000 cars, now we are talking about over one million cars sold and this growth comes not only from the emerging world, but also from mature markets such as Germany, where I see many Dacia Dusters, and Spain, where Dacia Duster was the best-selling car.
He says in Europe people are no longer thinking about buying a car that costs EUR20,000-EUR30,000. If people are not sure they will still have a job tomorrow, but they still need a car, for many Europeans this car has been Dacia.
The analyst sees the future evolution of Dacia sales as being increasingly fuelled by emerging markets, such as India, Brazil and Indonesia. “Dacia is an entry-level car. (…) So I think Dacia is the perfect product for Renault to gain access to emerging markets,” he says.
Emerging markets will fuel the growth of the global auto market by contributing a 5% rise next year, the analyst believes.
But few Dacia owners from outside of Romania know this is a Romanian brand.
“I think 80% of those who drive Dacias don’t know where the car originates from,” the analyst concludes.
(English version by Daniela Stoican)