Investors who are worried about having “missed the rally” in equities may still reap profits from buying now and seeking exposure to areas like midcap stocks in the U.S., according to UBS Group’s global wealth-management division.
“Record highs tend to be followed by further positive momentum,” UBS Global Wealth Management’s chief investment office said in its 2022 outlook report Thursday. “Tactically, we are positive on stocks given strong economic growth, solid earnings, and low bond yields.”
The S&P 500 index SPX,
The U.S. stock market has skyrocketed from the pandemic-era trough in March 2020, sparking some nervousness among investors about stretched valuations and risks of a correction.
“For investors with excess cash to put to work, but who are still worried about the risk of bad timing, there are defensive approaches to entering the market that may help,” UBS said in the report. “Investors can set a specific schedule to commit capital; write puts (if they are able to) in order to earn a premium and potentially buy on dips; or invest in a dynamic asset allocation that adjusts equity risk exposure systematically to help manage the risk of significant declines.”
Put options give holders the right to sell stocks at a fixed price by an agreed upon date, with the put holder poised to profit when the price of the underlying stock declines. The buyer pays a premium to the writer of the put option.
“With economic growth likely to remain strong in the first half of 2022, we see Eurozone and Japanese equities, U.S. mid-caps, global financials, commodities, and energy equities as beneficiaries,” UBS said in the report.
U.S. midcap stocks provide investors “a balance between cyclical and quality exposure, which we think is attractive at this point in the cycle, as we transition from high to slower growth,” said UBS. Stocks in the Russell Midcap Index RMCC,
The iShares Russell Midcap ETF IWR,
“We expect reopening dynamics to continue to drive returns at the start of the year as excess consumer savings are spent,” UBS said in its 2022 outlook report. “As the year progresses, we think business spending will play a larger role in driving returns, as companies expand capacity, restock inventories, and target increased market share.”