Dean Turner

Dean Turner

Stability isn’t everything – diversification is

Dean Turner, economist in the UK investment office at UBS Wealth Management, tells Mike Hughes how a new UBS report shows confidence in the UK economy from an influential sector.

Working in a local, national and global economy that is facing considerable change, perhaps the most we can say is that stability is desirable, but not essential.

Uncertainty can be dealt with if there are sources of trusted guidance to turn to. One of the illuminating findings of a new UBS report, titled “Is unpredictability the new normal?” revealed that two-thirds of Britain’s high net worth individuals – those with over US$1m in investable assets – suffer from information overload, highlighting the need for clear and well-informed advice.
UBS interviewed more than 2,800 millionaires in seven markets around the world – including over 400 in the UK – to assess how unpredictability is shaping their attitudes and actions.

The election of Donald Trump, the Brexit vote and tensions over North Korea are among the many unexpected events with major political, economic and social consequences.

As the report tells us: “Opinions differ on whether or not this is anything out of the ordinary. Some feel we live in very unpredictable times, while others consider such events to be no different to those experienced by previous generations.”

One of the key voices in that unpredictability debate is UBS economist Dean Turner, who told me: “We have some relative stability in the West compared to some of the emerging markets, but policies, governments and economic conditions change all the time, So, in reality, unpredictability has always been with us. In my experience, successful businesses are those that are open-minded and adapt to that change.

“Experienced business leaders are used to assessing and dealing with risk. Firms that have endured multiple economic cycles demonstrate that they can be pretty good at being adaptive and reacting well to change”.

The report UBS has launched tackles a notoriously tricky sector – getting millionaires to discuss their money or their concerns – but the breadth of findings here is an illustration of just how much investors can differ in their approach to securing their financial futures.

There are many revealing findings in the UBS report, including that 81% of British millionaires consider their domestic market to be a safe place to hold or invest their wealth. Turner argues it’s important to avoid domestic bias when it comes to investing, but that the UK remains an attractive place for investment.

“Diversification is the mantra of UBS, and is the first rule of investment because life is not always certain, therefore the only way we can reliably hedge against that is to diversify.

“When looking specifically at the UK economy, notwithstanding the outcome of the Brexit negotiations, I believe the UK will remain an attractive place for both domestic and international investors. The UK is still likely to be regarded as an attractive place to invest and start businesses. This is because it has the institutions and the legal framework that facilitate this; moreover, they are trusted globally. This is unlikely to be under threat, no matter what trading relationships the UK ends up with post-Brexit. So, it doesn’t surprise me that the number came out that high.”

The confidence of our own successful businesses is clearly reflected globally, with more businesses looking to Britain for security and reward for innovation and investment. Turner points out that the UK’s current account deficit means we are reliant on the flow of overseas income in order to match the balance of payments, but he adds: “Although we are seeing the balance of payments adjust naturally, the fact that we have not seen the pound much as low as many forecasters – not UBS Wealth Management – had predicted, suggests that there does seem to be a level of confidence in investing in the UK.

“Without question, we have a number of the high-profile announcements from companies such as Apple, AstraZeneca, and Google who are pushing ahead with their investment plans in the UK.”

The UBS report, conducted by international research firm Censuswide, concluded that confidence is high when it comes to navigating risk, and that there were steps to be taken to deal with unpredictability.

The report found that uncertainty comes from many angles – the financial system, various forms of politics and government, new and traditional media sources. It also said: “Short-term thinking is dangerous. Long-term risks are abundant. Unpredictability is more of a threat than an opportunity. Yet, confidence is high in dealing with our uncertain world. The critical question is how we translate this confidence into tangible results for our wealth.”

It suggests that businesses and investors should focus on the long-term and “cut through the noise” of short-term events and distractions. More so than any other market surveyed, businesses in the UK are seen to ignore long-term challenges and focus too much on the short term. Shareholders and investors are just as guilty, said 85% or respondents.

As Turner mentioned, diversification is seen as key. The report said: “Exposure to a broad range of assets and geographies is essential and helps to avoid the risks of domestic biases.”

But is cash still king? Not according to the report, which advises: “Be wary of overestimating the safety of cash. Cash may always be attractive, especially in an unpredictable world. But inflation erodes its value, meaning that cash assets can damage your financial health in the long term.”

UBS underlines the value of trusted advice in the report when it says: “People have relied for centuries on an outside voice offering a sober perspective and considered advice. In an unpredictable age, that advice appears even more important.”

With so much minute-by-minute information being analysed and acted on, Turner is well placed to give an upbeat assessment of the economy that our entrepreneurs will be facing. He told me: “I remain relatively optimistic. The economy has proved far more resilient than even those of us at the more optimistic end of the scale would have thought. We hadn’t expected a recession if we voted to leave the European Union EU, but there will be some short-term impact.

“Trends in prices and wages that have been identified for some time, are going to be felt by consumers as the year progresses. Assuming we get a relatively smooth path towards a new trading relationship with the EU, then the UK economy should be able to return to a growth rate comparable to the pre-referendum trend rate.

“In the meantime, we shouldn’t overlook the importance of the global backdrop. As a nation, we focus very much on the domestic story, and while that is very important, we mustn’t underestimate the importance of the resilient global economy to a small open economy like the UK. This should be another factor that eases any headwinds the UK may face as it transitions to a trading regime outside of the EU.”

UBS’s research found that our nation’s wealthy are also optimistic when it comes to the future. Only 17% of millionaires think that the economic outlook in the UK will deteriorate over the next 12 months, and over the long term, confidence is even higher.

The breadth of the coverage UBS offers and the access to information globally is one of its unique selling points and a strong reason why people go to UBS to manage their wealth. The company employs 200 people in the chief investment office alone and, together with its regional bases, gives the balanced view continues to win industry awards for.

That scale of operation also means that entrepreneurs working with UBS can contemplate a global potential as they start to grow, building a firm foundation for their futures and in turn boosting the UK economy.

Some other key findings of the UBS report were:

  • 79% of the UK’s wealthy believe elected governments can only respond to short-term dangers – more than any other international market.
  • 87% believe voters today make their choices based on emotions, not facts, compared to 82% of millionaires globally.
  • 74% of British millionaires get distracted from long-term financial planning by short-term risks. Half will base more of their decisions on short-term events following Brexit.
  • British millionaires feel mildly positive about the ability of technology to make the world more predictable. At 49%, big data is seen to be the most effective tool to reduce uncertainty compared to artificial intelligence (37%), robotics (34%) and social media (32%).
  • 30% of wealthy individuals have already reviewed their investments as a result of recent uncertain events. A further 45% plan to do so.
  • 86% say property and other physical assets offer financial safety – the highest rate among the international markets surveyed. Over a third invest more than 25% of their wealth in property.
  • Globally, five times as many millionaires expect to see an improvement in their finances over the next 12 months as see a decline. Nearly two-thirds believe they will reach their financial goals in the long term.
  • A third of British millionaires believe they are fairly taxed, but a fifth feel the opposite.