The New Rules of Investing: Insights from UBS Global Wealth Management CIO Mark Haefele

Mark Haefele, Chief Investment Officer of UBS Global Wealth Management, recently joined the Meb Faber Show podcast to discuss his new book "The New Rules of Investing" and share insights on the evolving world of investing and wealth management.

Following the Money: Government Spending and Investing

Haefele opened by discussing how government spending and policies have become increasingly important factors for investors to consider:

"During COVID, you could see that US Government expenditures as part of GDP shot up to the levels that it was in World War II. I thought hey, World War II was probably a time where you might think about looking at your portfolio and changing a few things."

He emphasized that following where governments are allocating large amounts of capital can be a smart investing strategy:

"What really works is buying what the government's buying and because and what the government's buying in size."

Some key areas Haefele highlighted where government spending is creating investment opportunities include:

• Defense spending
• Infrastructure and "de-globalization" efforts
• Climate change and decarbonization initiatives
• Digitization and AI development

He noted that gold has also benefited recently from increased central bank buying, likely as a hedge against "weaponization of the dollar."

The 5 D's Shaping the Investment Landscape

Haefele outlined what he calls the "5 D's" that are major themes driving government policy and spending:

1. Debt
2. De-globalization
3. Digitization
4. Decarbonization
5. Demographics

He views these as both challenges governments are trying to address, as well as areas creating investment opportunities:

"Where there are big problems, the reason you know they're big problems is because governments are throwing big money at them."

A New Framework for Portfolio Construction

Haefele shared a framework UBS uses to help clients think about structuring their portfolios, which he calls the "3 L's":

1. Liquidity - Cash and short-term investments to cover 3-5 years of expenses
2. Longevity - Longer-term investments for retirement, college savings, etc.
3. Legacy - Assets intended to be passed on to future generations or philanthropy

He explained this helps clients feel more secure about their short-term needs, allowing them to be more comfortable with volatility in their longer-term investments:

"When people have a real strong sense that they have the security of whatever happens in the market tomorrow, I know I'm going to be able to pay my bills for the next three to five years...then when the market sold off they weren't afraid in the same way, they saw it as an opportunity."

Challenges of Generational Wealth Transfer

Haefele discussed some of the challenges wealthy families face in passing assets to future generations:

"You literally start out with people who are like 'Well if I die I'm going to have to pass some of this money on' and it's like okay, well we got a little work to do here."

He shared that UBS tries to facilitate conversations between families to share experiences, as it's often easier for clients to hear advice from peers who have dealt with similar issues.

Some key challenges he highlighted include:

• Conflicts between family members
• Defining a shared purpose or mission for family wealth
• Preparing next generations to be responsible stewards
• Balancing wealth preservation with allowing autonomy

The Rise of Impact Investing

Haefele noted growing interest from clients in impact investing - using their capital to generate both financial returns and measurable social/environmental benefits:

"We choose to define impact investing as investing that sets out ahead of time to define certain social goods which will come out of these investments, that we will ahead of time track and measure."

He sees this as part of a broader trend of investors wanting to align their portfolios with their values and make a positive impact:

"People are doing it on a larger scale but unfortunately too much today is really at the higher end where people can get into kind of looking at individual assets on the private equity or debt side. We're hoping that gets democratized because the problems are so big, governments are not going to be able to solve these."

Outlook on Markets and Investing

Looking ahead, Haefele shared a few key thoughts on the current market environment:

• US stocks may continue to outperform in the near-term due to leadership in AI and digitization
• But longer-term, US outperformance vs. other markets may moderate
• The strong US dollar trend may be nearing an end
• Geopolitical tensions and potential new tariffs create uncertainty, especially for China and Europe
• Inflation declining could be a tailwind for markets broadly in the second half of 2024

He also emphasized the growing importance of narratives and storytelling in driving markets:

"I was hoping that would die off and we would go back to just valuations and market economics, but it doesn't seem to be going that way. It seems to be going the other way."

Key Takeaways for Investors

Haefele offered several important lessons for investors based on his decades of experience:

1. Risk management and proper position sizing are critical for long-term success
2. Focus on companies with real cash flows, not just hype
3. Government intervention and policy are increasingly important factors to consider
4. Behavioral biases affect everyone - even ultra-wealthy, sophisticated investors
5. Having a clear framework for portfolio construction can improve decision-making
6. Impact investing is a growing trend that may reshape capital allocation
7. Separating analysis of "how the world works" from personal opinions/values is key

By keeping these principles in mind, investors can better navigate an increasingly complex and rapidly changing investment landscape.

For those interested in learning more, Haefele's book "The New Rules of Investing" offers a deeper exploration of these topics and additional insights on wealth management. He can also be followed on LinkedIn for ongoing market commentary and analysis.

Article created from: https://www.youtube.com/watch?v=Z6SMBg31x54