Year Ahead 2025

Roaring 20s: The next stage

Chief Investment Office GWM | Investment Research
Year Ahead 2025 – UBS House View
This report has been prepared by UBS AG, UBS AG London Branch,
UBS Switzerland AG, UBS Financial Services Inc. (UBS FS),
UBS AG Singapore Branch, UBS AG Hong Kong Branch, and
UBS SuMi TRUST Wealth Management Co., Ltd.
Please see important disclaimers at the end of the document.
Foreword
Welcome to the Year Ahead 2025

Dear reader,

We are approaching the midpoint of a decade that has brought rising equity markets, solid
economic growth, and technological breakthroughs. Of course, this decade has also
brought a global pandemic, the outbreak of wars, and societal challenges.

In this Year Ahead, we look at key developments that we believe will shape the next stage
of these “Roaring 20s,” including US political change, falling interest rates, and
transformational innovation in artificial intelligence and in power and resources.

Our commitment to you, our valued clients, is to provide you with insightful guidance and
foresight now and for the years to come. We look forward to navigating the year ahead
together with confidence and purpose, seizing opportunities to meet your financial goals.

Thank you for your continued trust and partnership.

Warm regards,

Rob Karofsky Iqbal Khan

Co-President Global Wealth Management Co-President Global Wealth Management
and President UBS Americas and President UBS Asia Pacific

5
08 13 21
Introduction Outlook How to
invest?

09 The next stage 14 Economic outlook 22 Position for lower

rates
12 2024 in review 18 What will President
Trump mean for 26 More to go in stocks
markets?
30 Seize the AI
opportunity

33 Invest in power and

resources

35 Sell further dollar

strength

37 Go for gold

39 Time for real estate

6
41 50 58
The decade How to plan Forecasts
ahead ahead?

42 Debt 52 Put cash to work 59 Growth and inflation

43 Deglobalization 53 Strengthen your core 60 Asset classes

44 Demographics 54 Diversify with

alternatives
45 Decarbonization
55 Optimize your
46 Digitalization leverage

47 Asset class 56 Be active

expectations
57 Go sustainable

7
8
Roaring 20s:
The next stage

Since the start of the 2020s, global equity markets are up by around
50%, US nominal GDP has increased by over 30%, and US corporate
profits are up nearly 70%. All that in spite of unprecedented global
lockdowns, the outbreak of wars in Eastern Europe and the Middle East,
and the largest spike in interest rates and inflation in decades.

The market and economic developments have led some to term the
decade so far as the “Roaring 20s,” marked by high economic growth,
strong market returns, and improving productivity.

We are now approaching the midpoint of the decade, and the implica-
tions of the US election result are a focal point. A key question is
whether US political change might extend or end the Roaring 20s.

Mark Haefele
The upside scenario would see lower taxes, deregulation, and trade
Chief Investment Officer
Global Wealth Management deals adding to a positive market narrative built on solid growth and
continued investment in artificial intelligence. The risk scenario is that
trade tariffs, excessive fiscal deficits, and geopolitical strife will contrib-
ute to higher inflation, weaker growth, and market volatility.

As we consider a wider range of market outcomes ahead, the unpre-

dictability of this decade so far should remind us of the importance of
humility and market diversification. But it should also remind us of the
adaptability of the economy, the power of innovation, and the potential
for long-term market growth.

In Year Ahead 2025, we highlight the investment opportunities and

strategies to help investors capture opportunities and manage risks as
the decade enters its next stage.

9
What does this mean for investors? Lower returns on cash entering
In our base case, we believe that central banks are 2025 offer an opportunity to
poised to cut interest rates further in the year ahead
and that returns on cash will fall. As such, we be- add to stocks and bonds.
lieve investors should position for lower rates by put-
ting cash to work in investment grade bonds, diver-
sified fixed income strategies, and equity income
strategies to sustain portfolio income. to contribute to volatility for European and Chinese
markets in the year ahead.
We continue to believe that artificial intelligence is
positioned to be the investment opportunity of the While tariffs are a concern, they should not com-
decade. To capitalize, investors should focus on both pletely overshadow the opportunities outside the
listed megacaps and innovative private companies. US. We see value in maintaining diversified exposure
Rising electricity demand and decarbonization goals to Asia ex-Japan. Korea’s and Taiwan’s exports, cru-
should also create a significant long-term opportu- cial to global supply chains, are less likely to be af-
nity in companies related to power and resources. fected by tariffs owing to their non-substitutable na-
ture. India offers a compelling domestic growth
We think there is more to go in equities. With mar- story, and we remain positive on China’s internet
kets powered by falling interest rates, solid eco- stocks, which could benefit from potential stimulus
nomic growth, and transformational innovations, measures. In Europe, our focus is on small- and mid-
we expect the S&P 500 to reach 6,600 by the end cap stocks in the Eurozone, as well as Swiss high-
of 2025—around a 10% price return from current quality dividend payers.
levels. Tariffs and geopolitical uncertainty are likely

10
In currencies, tax cuts, immigration controls, and tar- Thinking strategically
iffs are likely to provide short-term support for the Beyond some of the specific ideas we present in this
dollar. While further near-term strength cannot be Year Ahead, we also provide a number of strategic
ruled out, we believe the dollar is currently overval- focus areas that can help investors plan ahead and
ued and overextended. Investors should consider build better long-term portfolios.
selling further dollar strength.
These include: putting cash to work, strengthening
In commodities, we expect gold to break new highs your core, diversifying with alternatives, optimizing
and anticipate higher prices for “transition” metals leverage, being active with managing your invest-
like copper, lithium, and nickel. We also think the ments, and considering going sustainable.
outlook for global residential and commercial real
estate is bright amid constrained supply and rising By thoughtfully embracing near-term opportunities
demand. within the framework of a well-crafted strategic
plan, we are confident that investors can build resil-
ient and profitable portfolios. As we reach the mid-
Embracing near-term point of this dynamic and transformative decade, we
opportunities in a well-crafted extend our best wishes for a prosperous and suc-
cessful year ahead.
strategic plan can help build
resilient and profitable
portfolios.

To find out more about

the Year Ahead 2025, visit
ubs.com/yearahead

11
2024 in review

Growth Inflation and rates

We anticipated a deceleration in growth for 2024, Inflation fell more slowly in 2024 than in 2023, but
but expected the economy to avoid a recession. continued to move down toward central bank tar-
Growth exceeded expectations. Developed econo- gets. We anticipated 50 basis points of rate cuts
mies are on track to grow by 1.7% in 2024 versus from the Federal Reserve in 2024. The Fed has al-
our estimate of 1.1%, with US economic outperfor- ready cut rates by 75bps, and we think another
mance a key driver. Emerging market growth also 25bp rate cut is possible before the end of 2024.
looks set to modestly exceed our forecasts (4.4%
versus 3.9% expected).

Bonds Equities
We projected positive returns from quality bonds We expected positive returns for stocks in 2024 and
and forecast that the 10-year US yield would fall to advocated a focus on quality companies, including
3.5% by the end of 2024. By September 2024, those in the technology sector. Returns exceeded
yields had fallen to 3.6%. But stronger economic our expectations, with the MSCI AC World index
growth data and anticipation of higher inflation un- delivering a 15.9% year-to-date price gain in US dol-
der a new US administration supported yields later in lars. The MSCI AC World Quality and MSCI AC
the year, pushing them up to 4.4% at the time of World Technology indices are up by 18% and
writing. Investment grade bonds have returned near 27.3%, respectively, this year.
3% year-to-date.

Currencies Commodities
Our message in currencies last year was to “trade We expected gold to break new record highs, fore-
the range.” We expected EURUSD to trade between casting it to rise to USD 2,150/oz (from USD 1,950/
1.00 and 1.12 and USDCHF to trade between 0.85 oz at the time of writing). It overshot our initial ex-
and 0.94. Those ranges have held through the year, pectations, closing as high as USD 2,790/oz in Octo-
with EURUSD currently trading near the middle of ber. Oil helped hedge geopolitical risks in the first
this range, close to where it was 12 months ago. half of the year but ultimately fell short of our ex-
pectations of USD 90-100/bbl, with Brent crude
trading at USD 71/bbl at the time of writing.

12
13
Economic outlook
In our base case, we expect sustained economic growth in the US, sup-
ported by healthy consumption, loose fiscal policy, and lower interest
rates. Tariff threats are a headwind for Asia and Europe. If imposed, they
could be partially offset by reactive stimulus measures in China. We
expect growth in Europe to modestly improve as interest rates fall.

US: Slower but solid

Over the past two years, the US economy has defied In the year ahead, we expect US economic growth
expectations that higher interest rates would provoke to slow somewhat but remain close to 2%. We be-
a sharp slowdown. In 2024, nonfarm payroll growth lieve many of the key factors that have sustained US
averaged 170,000 per month, and GDP growth esti- economic growth in recent years are likely to persist.
mates point to a 2.7% rate for the full year.

Solid US growth despite sharp rate hikes

US real GDP growth and federal funds rate, upper bound

5 6

4 5

3 4

2 3

1 2

0 1

₋1 0

1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24

Real GDP, % q/q, saar (lhs) Fed funds rate, % (rhs)

Sources: Bloomberg, UBS, as of November 2024

14
Strong incomes support spending Risks to watch
Strong income growth is enabling consumers to in- We are monitoring potential risks. While we do not
crease spending while maintaining decent savings believe selective tariffs on US imports from other
rates. This suggests that consumption can stay ro- countries are sufficient to derail US growth, blanket
bust, provided the labor market remains healthy. Un- tariffs would increase the risk of US stagflation.
employment has started to rise but remains low by
historical standards.
We expect US economic
We also expect inflation to keep falling, even if se- growth to slow slightly but
lective tariffs contribute to a one-off increase in
some prices. US goods prices have been in deflation
remain close to 2%.
for the past three years, while stubbornly high shel-
ter prices are easing. In our view, the Fed is likely to
look past tariff-induced price increases and will cut
interest rates by a further 100bps during 2025, Limits on migration introduced in mid-2024, and po-
bringing rates close to our estimate of neutral (3.25- tential future limits on migrant labor supply, are likely
3.50%) by the end of the year. Lower rates should to mean slower labor supply growth. This could
ease pressure on indebted households and busi- cause inflation to remain more stubborn than ex-
nesses, and improve conditions in interest-rate-sensi- pected and could limit overall GDP growth.
tive parts of the economy.
We also note that US fiscal policy is unsustainable
Tax cuts and deregulation under President Trump over the long term. We expect a budget deficit in
may further bolster the US economy. excess of 6% in 2025 for the fourth consecutive
year. We do not expect any major measures to ad-
dress the deficit to be introduced in the near term,
and there is a risk that higher long-term borrowing
costs weigh on US growth.

15
Asia: Divergence amid slower growth
We forecast slightly slower growth in Asia in 2025, Robust growth in emerging Asia
with regional variations. India and Indonesia are likely to experience stronger
growth due to favorable demographics and lower
China: Tariff headwinds tariff risks. In fact, US-China tensions might actually
In our base case, we anticipate the Trump adminis- enhance investment in other parts of Asia, bolstering
tration will introduce additional selective tariffs on infrastructure and construction activity.
US imports from China, increasing the effective rate
from about 10% to 30% by end-2026. In a risk sce- Acceleration in developed Asia Pacific
nario, a 60% blanket tariff could make much of We forecast Japan’s growth to accelerate to 1.1% in
US-China trade unviable. 2025 from -0.2% in 2024, driven by higher wages
and consumption, with a Bank of Japan rate hike
However, China’s CNY 10 trillion local government anticipated by mid-2025. We project Australia’s GDP
debt resolution plan should help mitigate risks, and to increase to 2.0% in 2025 from 1.2% in 2024,
Beijing appears ready to boost economic stimulus if aided by fiscal measures to boost consumption and
needed. increased mineral demand for renewable energy.

We expect China’s growth to move from 4.8% in

2024 to 4.0% in 2025.

Asia to experience growth divergence

Real GDP growth, % y/y, UBS estimates

₋1
India Philippines Malaysia Indonesia Mainland Taiwan Singapore Thailand Hong South Australia Japan
China Kong Korea

2024E 2025E

Source: UBS, as of November 2024

16
Europe: Uneven and subdued but stronger
In 2025, we expect Europe’s economic growth to be Fiscal and manufacturing headwinds
uneven and subdued, yet stronger than in 2024. Tight fiscal budgets are constraining public spending
and limiting the ability of governments to stimulate
Trade risks their economies through public investment. The
A global trade war is a potential risk for Europe in manufacturing sector is also under pressure due to
the year ahead, especially for export-oriented econo- weak demand from China.
mies. At the same time, higher European defense
spending and additional investment associated with Consumer and monetary support
near-shoring may support growth. Despite these challenges, we expect high recent sav-
ings rates and rising real incomes to boost consumer
Country-level divergence spending as inflation declines. Furthermore, we ex-
We believe Germany, France, and Italy will experi- pect further interest rate cuts by the European Cen-
ence modest growth of around 1%, with structural tral Bank, Bank of England, and Swiss National Bank
challenges and fiscal constraints limiting growth. We to support corporate investment.
expect Spain, the UK, and Switzerland to outper-
form, with growth rates of approximately 2.3%,
1.5%, and 1.3%, respectively.

Wage growth in Europe could boost spending

Eurozone nominal wages and salaries, and headline CPI, quarterly average, % y/y

6 10

5
8
4
6
3
4
2

1 2

0 0

₋1
₋2
2009 2012 2015 2018 2021 2024

CPI (rhs) Wages (lhs)

Sources: Eurostat, Bloomberg, UBS, as of November 2024

17
What will President
Trump mean for
markets?
A Trump presidency, coupled with Republican control of Congress, has
the potential to reshape the global economic and geopolitical landscape.
Key policy areas in focus for investors include tariffs, fiscal policy, deregu-
lation, monetary policy, and international relations.

Economic implications
Trade: Selective and bilateral tariffs likely The Fed: Still on course for lower rates
Tariffs—particularly the mooted blanket 60% on Although tariffs could temporarily increase inflation,
Chinese imports and 10% on others—pose the most we believe the Federal Reserve will continue its path
significant global economic risk. Given potential le- of rate cuts toward achieving a neutral policy
gal and Congressional challenges, we think that the stance; we anticipate 100bps of rate cuts in 2025.
Trump administration is more likely to implement bi- Nevertheless, the Fed will closely monitor factors
lateral and selective tariffs. Such tariffs are likely to that could have a more long-lasting impact on infla-
contribute to volatility for European and Chinese tion or inflation expectations, including limitations
markets, but in our base case we do not believe they on migration, blanket trade tariffs, or significantly
would derail US growth. looser fiscal policy.

Fiscal and regulatory policy: Congressional Geopolitics: Peace through strength

constraints? A “peace through strength” approach to Trump’s
The Trump campaign emphasized extending per- foreign policy could increase volatility in a market
sonal income tax cuts, reducing corporate taxes, and seeking greater geopolitical stability.
implementing deregulation on the financial and en-
ergy sectors. While these measures could stimulate Initially, we expect a more confrontational approach
economic activity, Congressional objections amid toward China, strains in transatlantic relations, and a
large federal budget deficits may limit their scope. “maximum pressure” strategy on Iran, with a view
For example, fiscal hawks in Congress might resist of seeking deals to preserve US interests. At the time
policies that further expand the deficit. of writing, Polymarket prices the odds of Trump end-
ing the Russia-Ukraine war within 90 days of taking
office at 39%.

18
Market implications
Equities: Divergent US and international impact Currencies: Near-term dollar strength, longer-
For the US, we anticipate the S&P 500 reaching term weakness
6,600 by the end of 2025, driven by benign growth, The US Dollar Index has strengthened on confirma-
lower interest rates, and AI advancements. Potential tion of a Trump presidency, driven by expectations of
tax cuts and deregulation under a Trump administra- lower taxes, higher tariffs, and heightened geopoliti-
tion could further support markets. Our preferred cal uncertainty. While the dollar may remain strong
sectors include technology, utilities, and financials. in the short term, we believe that the dollar is now
While tariffs may affect tech earnings, AI infrastruc- overvalued and overstretched at current levels. The
ture spending remains robust. Utilities may face Chinese yuan is likely to remain pressured until clar-
headwinds from less government support for renew- ity about trade tariffs emerges.
ables, but demand for AI data centers should drive
power demand. We expect the financial sector to Gold: Initial sell-off, a good hedge
benefit from deregulation. Gold prices sold off on confirmation of a Trump
presidency, with a stronger US dollar, higher yields,
International markets could face greater headwinds and a decline in equity market volatility crimping in-
from tariffs. That said, Beijing’s potential stimulus in vestor demand for the metal. However, in 2025, we
response could help mitigate the impact on China, believe gold will remain an effective hedge against
US imports from markets like Taiwan and Korea are key political concerns, including government debt
not easily replaceable, and most US sales by Euro- levels, inflation, or geopolitical tensions. We main-
pean companies are from goods and services made tain our target of USD 2,900/oz by end-2025 and
in the US. continue to recommend around a 5% allocation to
gold as a diversifier.
Bonds: Yields rise too far?
US Treasury yields rose in anticipation of a Trump
presidency. But with the Fed likely to stay on a rate-
cutting path, and with plans to loosen fiscal policy
facing potential Congressional constraints, we think
yields are likely to fall in the year ahead. We believe
investors should use currently elevated yield levels to
lock in returns.

19
Our scenarios
Base case: Growth despite tariffs Bull case: Growth surge

Probability 50% Probability 25%

S&P 500 6,600 S&P 500 7,000
10-year US yield 4.00 10-year US yield 4.50
EURUSD 1.12 EURUSD 1.15

US equities rise. US growth is supported by deregu- US equity markets surge on strong US growth and
lation and improved business confidence, more than AI optimism, and inflation remains contained. A
offsetting the impact of selective tariffs on Chinese trade deal is reached and/or Chinese fiscal stimulus
and key European imports. Trade and geopolitical and stronger global demand are sufficient to sup-
negotiations add to volatility for European and Chi- port European and Asian markets, despite tariffs.
nese markets. The most expansionary US fiscal plans Bond yields stay elevated on stronger longer-term
are shelved and inflation falls toward target. Bond growth and inflation expectations. Central banks
yields fall slightly and central banks consistently cut gradually cut interest rates toward neutral.
interest rates toward neutral.

Bear case: Hard landing Bear case: Tariff shock

Probability 10% Probability 15%

S&P 500 4,500 S&P 500 5,100
10-year US yield 2.50 10-year US yield 5.00
EURUSD 1.05 EURUSD 1.00

US growth declines owing to weak consumer spend- The imposition of large, blanket tariffs on US im-
ing and deteriorating labor markets. Tariffs add to ports from multiple countries and retaliation from
economic challenges for Europe and Asia. A weaker trading partners trigger higher US inflation, which,
consumer more than offsets the inflationary impact alongside a rising fiscal deficit, leads to higher bond
of tariffs, and inflation falls, prompting central banks yields. The disruption to global trade leads to lower
to cut rates. Global equities suffer double-digit US domestic demand and much weaker global eco-
losses, and credit spreads widen. Assets with safe- nomic growth. US and global equities decline.
haven characteristics, including high-quality bonds,
gold, the Swiss franc, and the yen, appreciate.

20
How to invest?
Our messages in focus

» Position for lower rates » Sell further dollar strength

» More to go in stocks » Go for gold
» Seize the AI opportunity » Time for real estate
» Invest in power and resources

21
Position for lower rates

We expect central banks to cut interest rates further in the year ahead, reducing cash returns.
We believe investment grade bonds offer attractive yields and expect mid-single-digit returns in
US dollar terms. Diversified fixed income strategies and equity income strategies can also help
investors sustain portfolio income.

High grade and investment grade bonds ting cycle to contribute to supportive technicals and
We have a positive outlook for both high grade investor inflows, helping credit spreads stay tight.
(government) and investment grade (IG) bonds.
In our base case, we expect IG to deliver mid-single-
After the recent increase, yields on quality bonds are digit total returns in USD, EUR, and GBP. These re-
once again attractive, in our view. turns come from both yield (accounting for around
two-thirds of returns) and capital appreciation
USD IG and EUR IG yield 5.3% and 3.2% at the time (around one-third), as steepening yield curves mean
of writing. Corporate fundamentals are robust, in investors benefit from “roll down” as bonds ap-
our view, with limited expected deterioration in proach maturity.
credit quality. And we anticipate the global rate-cut-

Investment grade bonds can deliver attractive returns

Estimates of investment grade total returns over the next 12 months under different Fed policy rate scenarios,
current (shaded area)
30.8%

27.3%

23.9%

20.4%

17.0%

13.5%
10.1%
5.3%
3.2%
–10.6%
–7.2% –3.7% –0.3%
150 100 50 0 –50 –75 –100 –150 –200 –250 –300 –350 –400

Fed cuts/hikes

Note: Analysis assumes credit spreads remain unchanged under the different scenarios and the US Treasury curve will move by the same magnitude as
Fed rate cuts. Index: Bloomberg US Corporate Bond Index.
Source: UBS, as of November 2024

22
Investment grade bonds are also appealing from a As such, in a portfolio context, we think that com-
risk management perspective. While a tariff shock is plementing IG bonds with riskier credit (like US,
a potential risk, IG bonds should perform strongly in EUR, and Asia high yield, emerging market bonds,
a hard landing scenario. In such a scenario, we or senior loans) can improve diversification and in-
would expect falls in government bond yields to crease returns.
more than offset higher credit spreads.
For investors managing single bond portfolios, we
Diversified fixed income strategies recommend a focus primarily on quality bonds but
Although spreads for lower-quality credit are tight by augmenting those with select investments in short-
historical standards, and we believe the risk-reward and medium-duration riskier credits. We advocate
profile of investment grade bonds is more favorable, staying in liquid parts of the bond market to maintain
we also expect respectable absolute returns for risk- flexibility to take advantage of new opportunities.
ier credits in the year ahead. Solid economic and
corporate fundamentals should keep default rates Target portfolio composition depends heavily on indi-
low, and investor inflows should keep spreads tight. vidual risk appetite, but for an investor with a mod-

Portfolio income strategies can offer attractive yields

Yields across fixed income and equities, including a high dividend + call overwriting strategy

7.3%
5-7%
5.3%
4.6%
3.8%

HG US IG US HY High dividend High dividend +

(dividend yield) call overwriting

Fixed income Equities

Note: The call option income is based on a simulation of a globally diversified equity call option strategy and refers to the net yield obtained through
this strategy. For more details on our methodology for the call option strategy, see “Selling options in a portfolio context” dated 16 June 2022 (not
available for US investors).
strategy, Indices used: SOFR rate and expected rate based on forward markets, Bloomberg Eurodollar Aa of higher, Bloomberg US aggregate Corp,
JP Morgan EMBI Div., MSCI ACWI High Dividend index.
Sources: Bloomberg, UBS, as of November 2024

23
erate risk tolerance, we would typically recommend can further diversify sources of portfolio income and
allocating 20-40% of a fixed income portfolio to may be treated as capital gains (rather than income)
sub-investment grade and emerging market credit. in some jurisdictions.

Equity income strategies We estimate mixing high dividend, dividend growth,

Investors seeking income can also consider equity in- and option strategies could deliver a total yield of
come strategies, including high dividend, dividend around 5-7% per year.
growth, or option premia strategies.

The MSCI AC World High Dividend Yield Index is

forecast to yield 3.5-4.0% in 2025, according to
Bloomberg consensus estimates, a level likely to sur-
pass cash yields by the end of the year. Considering We estimate mixing high
high-dividend yielders that have a track record of dividend, dividend growth,
consistently growing dividends can improve income
sustainability. and option strategies could
deliver a total yield of around
Options strategies, including put writing and cov- 5-7% per year.
ered-call writing, can further enhance income poten-
tial. By harvesting volatility premia, such strategies

24
How far will central banks cut rates?

At the time of writing, rates are 50-75bps below we do not expect new US policies to have a signifi-
their recent peaks in most major economies. cant upward impact on inflation and believe the Fed
would likely look past one-off price rises related to
But even after recent cuts, rates remain restrictive, in tariffs. It is also important to remember that rates
our view. could fall faster than in our base case in the event of
a consumer-led slowdown in economic activity.
We think that as 2025 advances, most major central
banks will want to bring interest rates back to a level We recommend limiting cash and money market
that is neither stimulative nor restrictive for the econ- holdings to the amount needed to cover one year
omy. From current levels, we expect a further 125bps of spending needs. For funds needed to cover the
of cuts from the Fed, 50bps from the Swiss National next three to five years of spending needs, high-
Bank, 125bps from the European Central Bank, and quality bonds and bond ladders can help to mini-
100bps from the Bank of England. mize reinvestment and market timing risks. For
funds not needed in the next three to five years, we
The Fed has stated that it will be monitoring the net recommend investing into a core long-term multi-
inflationary effect of new US policies as they are in- asset portfolio.
troduced, and we think it could cut rates more
slowly if inflationary risks rise. But in our base case,

25
More to go in stocks

After strong years for equities in 2023 and 2024, we see further upside in 2025. We expect
the S&P 500 to reach 6,600 by the end of 2025, around 10% higher than today’s levels. Tariffs
could contribute to volatility in European and Chinese markets. But we see value in maintain-
ing diversified exposure to Asia ex-Japan. In Europe, we like small- and mid-cap stocks and
Swiss high-quality dividend payers.

We view the outlook for US equities as constructive outlook on US technology stocks. Earnings growth is
from a macroeconomic, structural, and bottom-up also broadening into non-tech earnings in the US, a
perspective. The combination of resilient US growth trend which could be further supported by US dereg-
and lower Fed rates has historically been a powerful ulation and tax cuts.
combination for US stocks. In the past, when the
Fed cut rates and the US did not enter recession, US Valuations are not low in a historical context. On a
equities rose 18% on average in the 12 months af- 12-month forward price-to-earnings ratio basis, the
ter the first Fed rate cut. S&P 500 currently trades at 22.3x versus a 20-year
average of 16x. But we believe this valuation is justi-
The recent earnings season demonstrates that AI ca- fied by the healthy US economic backdrop and the
pex intentions remain robust, supporting our positive high degree of exposure to structural growth.

Rate cuts support US equities without recession

S&P 500 average performance (indexed to 100) following first Fed rate cut

120

115

110

105

100

95

90

85
–12 –10 –8 –6 –4 –2 0 2 4 6 8 10 12
Months before/aer first Fed rate cut

Recession No recession

Sources: Bloomberg, UBS, as of November 2024

26
US: AI, tech, financials, and utilities to drive • Utilities: Although utilities companies with high
further upside renewables exposure could face near-term pres-
We think the US equity market looks Attractive and sures, we also expect significant growth in AI data
expect the S&P 500 to hit 6,600 by the end of 2025, centers to fuel power demand, leading to higher
around 10% higher than today’s levels. power prices. Roughly 20-25% of the sector has
material exposure to these trends. The sector’s
The US economic backdrop is supportive, the market defensive characteristics should also offer ballast to
is less at risk from tariffs than other international mar- a portfolio in case economic growth concerns rise.
kets, and structural trends around AI and power and
resources bolster the outlook. AI-related companies • Financials: We expect Fed rate cuts to lead to lower
that span semiconductors, cloud service providers, de- funding costs, higher loan growth, and more capi-
vices, and data centers account for over one-third of tal market activity. Following the US election, we
the S&P 500 by market cap. We expect around 11% also expect the financial sector to benefit from
S&P 500 earnings per share growth in 2024 and 8% in deregulation.
2025.

Within the US, we view the technology, utilities, and

financials sectors as Attractive.

• Technology: AI infrastructure spending remains

robust, and we expect key semiconductor compo-
nents needed for AI to remain supply constrained
in 2025, supporting pricing. In addition, the tech
sector should benefit from an improvement in PC
and smartphone end markets. The industry could
face headwinds from tariffs, but we do not believe
this will outweigh the structural growth story over
the medium term. We see the best opportunities
in AI-linked semiconductors and US megacaps.

27
Asia: Diverse growth opportunities ities, energy, and telecoms. Corrections in internet
We find the Asia ex-Japan market Attractive overall, names could be seen as good entry points for
and expect the MSCI Asia ex-Japan index to return investors willing to hold over multiple years, due to
about 15% by the end of 2025. their attractive growth prospects and valuations.

While tariffs are likely to be a headwind for China, • Taiwan: We see Taiwan as an Attractive market.
AI spending, high GDP growth, and declining US While the market is sensitive to trade, key semi-
and regional interest rates should be supportive for conductor exports are not readily substitutable,
other markets in the region. we expect AI demand to remain robust, and think
that pricing power should lead to positive gross
We expect Asia ex-Japan to offer one of the most margin surprises in 2025.
appealing earnings growth profiles globally, with a
forecast of 13% earnings growth in USD for 2025. • India: We view India’s market as Attractive. High
structural rates of GDP growth are supported by
• Mainland China: We expect US tariffs and poten- favorable demographics in a domestically oriented
tial stimulus disappointments to pose risks to Chi- market, and we expect 12% EPS growth in fiscal
nese stocks in the months ahead. Against this year 2025 (MSCI India) and 14% in fiscal year
backdrop, we anticipate defensive and high-yield- 2026.
ing value sectors to outperform, like financials, util-

Asia ex-Japan earnings growth to lead the way

CIO's 2025 EPS earnings forecasts for select equity markets (MSCI indices)

13.1%

8.5%
8.0%
7.5% 7.4%
6.0%
5.3% 5.0%

Asia ex-Japan China US Switzerland AC World Japan UK EMU

(USD)

Source: UBS, as of November 2024

28
Europe: Focus on Eurozone small- and mid-caps • Eurozone small- and mid-caps. Eurozone small-
and Swiss high-quality dividends and mid-caps are currently trading at a 20-year
The potential for tariffs under a Trump administration low price-to-earnings ratio compared to large caps
is a concern for European companies, particularly Eu- (MSCI EMU). They should benefit from falling
ropean cyclicals (like consumer discretionary and in- rates, improving lending conditions, and healthier
dustrials) exposed to China. We expect European domestic growth. In addition they offer some
earnings growth to be weaker than elsewhere in the exposure to structural trends, including power
world, and expect European stocks to underperform generation, decarbonization, and automation.
US equities.
• Swiss high-quality dividends. The 3% dividend
Nevertheless, solid economic growth, lower interest yield of the Swiss Performance Index (SPI) is higher
rates, and reasonable valuations should offer some than Swiss franc bond yields and above the
support. The MSCI Europe Index trades at a 25-year historical average of 2.4%. Balance sheets
12-month forward price-to-earnings ratio of 12.9x. and profitability are robust, in our view, suggest-
We expect total returns of around 6% by the end ing that distributions are sustainable.
of 2025.

We favor beneficiaries of falling interest rates and

structural growth opportunities. Eurozone small- and
mid-caps and Swiss high-quality dividends are
among our preferred tactical ideas in Europe.

29
Transformational innovation
opportunities

We expect significant and sustained profit growth in the transformational

innovation opportunities of (1) Artificial intelligence and (2) Power and
resources. By investing in these areas, we believe investors can earn
strong long-term returns.

1. Seize the AI opportunity

We expect artificial intelligence to be one of the most important investment opportunities of
the decade. We expect high rates of investment to soon be followed by growth in applications,
and we expect companies across the AI value chain to generate more than USD 1.1 trillion in
revenue by 2027, just five years after the onset of ChatGPT. Investors should focus on both
listed megacaps and innovative private companies to capitalize.

Rising capital expenditures by big tech bodes well for AI data centers
Big 4’s capital expenditure (Alphabet, Amazon, Meta, Microso)
USD 148bn

USD 222bn

USD 267bn
USD 95bn

2020 2023 2024E 2025E

Sources: Bloomberg, FactSet, UBS, as of November 2024

30
Recent years have seen capex on artificial intelli- By 2027, just five years after the onset of ChatGPT,
gence increasing sharply. we expect the enabling layer to generate USD 516
billion in revenue, with AI chip companies and cloud
By the end of this year, we estimate that four tech service providers likely to capture most of this value.
companies (Alphabet, Amazon, Meta, Microsoft) will
have spent USD 222bn on AI capex in 2024 alone— We expect strong growth in revenues in the intelli-
a 50% year-over-year growth rate. That has been gence layer—i.e., large language models—too.
supporting significant growth in earnings for AI chip
companies and cloud service providers, both of And by 2027, we also expect a directly addressable
which are in the enabling layer of the AI value chain. market of USD 395bn in revenue opportunities for
the applica­tion layer. We expect successful genera-
But we believe there is more room to grow. tive AI applications across a range of industries, in-
cluding in health care, cybersecurity, and fintech.

The AI market opportunity: a bottom-up perspective

Estimated 2027 revenue in each layer of the AI value chain

Enabling layer Intelligence layer Application layer

AI data centers

Infrastructure Cloud LLMs Applications

GPUs, memory, Public and private Text, image, Co-pilot, assistants,
interconnects, cloud solutions and video marketing, customer
SSD,other data service, R&D
center capex

2027E Revenue USD 331bn USD 185bn USD 255bn USD 395bn

Depreciation

Capex

Sources: Bloomberg, UBS, as of November 2024

31
The commercial effects of AI adoption could range ment in AI infrastructure. This includes not only
from shorter drug discovery cycles (health care), to leading US fabless chip designers, but also Tai-
lower cost bases (financials) and greater demand for wanese foundries with a strong technological
security and infrastructure safety (cybersecurity). edge and limited substitution risk posed by com-
petitors, enabling them to better mitigate any
potential tariff hikes. We believe specific opportu-
How should investors position? nities in the application layer will become clearer
over the coming years.
• First, investors should ensure they are sufficiently
invested. The sheer pace of growth in the industry • Third, diversify investments between listed mega-
means that investors who were underallocated caps and innovative private companies. The AI rush
before have become even more underallocated. so far has been highly beneficial for the largest
We believe a neutral allocation to artificial intelli- tech firms. We believe this is a feature of the new
gence would involve allocating around 25% of an AI investment landscape, and we expect an oligop-
equity portfolio to stocks with a high degree of oly of vertically integrated “foundries” and mono-
exposure to the technology. lithic players to dominate. But we also see appeal-
ing opportunities in non-listed companies in areas
• Second, for now, tilt toward the enabling layer. including LLMs, software, and data centers, for
We believe this segment currently offers the best investors willing and able to bear the risks inherent
mix of attractive and visible earnings growth pro- in private market investing, including illiquidity.
files, strong competitive positioning, and reason-
able valuations. We favor the semiconductor
companies that benefit from the current invest-

32
2. Invest in power and resources

We believe the power and resources field is set for transformational growth, offering signifi-
cant investment opportunities across power generation, grid infrastructure, and natural
resources as the world adapts to increasing electricity demand.

The rise of AI data centers, industrial electrification, Consumption: Data centers as growth
electric vehicles, and global climate goals is increas- accelerators
ing electricity demand. We estimate that electrifying Large AI data centers are significantly boosting elec-
the economy will require USD 3 trillion annually by tricity demand. A single NVIDIA GB200 GPU can
2030, benefiting companies in power and resource consume as much power as an average US house-
innovation. hold in a year, and a server rack can hold 72 GPUs.
Cooling a modern hyperscale facility can require
The electrification value chain includes raw materi- transferring heat equivalent to melting 40,000 tons
als, generation, storage, transmission, distribution, of ice daily. The Electric Power Research Institute
and consumption (e.g., data centers, transport, projects data centers could use up to 9% of US elec-
heating, and cooling). Currently, we believe the best tricity by 2030, up from 4% today. We also expect
opportunities are in transmission, distribution, data growth in electric transport, heating, cooling, and
centers, transport, and energy storage. energy efficiency equipment.

AI-driven data center growth should boost energy demand

Global data center energy consumption estimates, in TWh

1,200

1,000

800

600

400

200

0
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Goldman Sachs estimates IEA estimates

Sources: Manaset et al. (2020), Cisco, IEA, Goldman Sachs, UBS, as of November 2024

33
Transmission and distribution: Strong growth renewable technologies. Companies with strong re-
ahead source bases and efficient production are likely to
We anticipate the transmission and distribution seg- benefit.
ment to experience the strongest growth within the
electrification value chain. A decade of underinvest- Generation and energy storage: Challenging
ment has left grids in developed markets needing fundamentals
significant upgrades. Emerging markets also require We expect long-term growth in electric generation
extensive buildout to meet rising electricity de- technologies, including renewables, natural gas/hy-
mands. The shift toward smaller, less centralized drogen, and nuclear energy. However, developing
generation necessitates further investments in grid new capacity is complex and time intensive owing to
modernization, including sensors, digital technolo- land, capital, financing, and grid management
gies, and load management software. Also, as the needs. Equipment demand could lead to excess ca-
electric intensity of households and businesses in- pacity, and tariffs may affect supply chains. Compa-
creases, more equipment, transformers, and switch- nies with strong financial health and competitive ad-
gear will be needed. vantages in solar, wind, nuclear, and natural
gas-hydrogen technologies should be prioritized.
Raw materials: Demand for transition metals Emerging technologies like advanced battery storage
Electrification and renewable energy will increase and small modular nuclear reactors can offer imme-
demand for metals like copper and aluminum in our diate growth opportunities.
view, which are crucial for electrical components and

The electrification value chain

Energy storage

Raw materials Generation Transmission & Distribution Consumption

Fuels & industrial Power stations High & medium voltage Power Heating/Cooling Transportation
materials Fossil fuel plants, power transfer Datacenters, Heat pumps Electric vehicles
Fossil fuels, uranium, nuclear plants, Cabling infrastructure, industrial/
copper, aluminium, solar parks, industrial equipment commercial/
lithium, etc. wind farms, etc. residential use

Source: UBS

34
Sell further dollar strength

While the US dollar may stay well bid in the near term, we believe its valuation may now be
overstretched. We recommend investors use periods of strength to reduce US dollar exposure
through strategies such as hedging dollar assets, switching USD cash and fixed income expo-
sure to other currencies, and through options.

USD: Strength has its limits Additionally, worries about the US government debt
The US dollar is entering a phase of uncertainty. trajectory or unpredictable foreign policy could un-
dermine confidence in US Treasuries as a safe asset.
Tax cuts and deregulation may attract capital inflows
to US markets, while immigration controls could In the short term, new policy announcements might
tighten the labor market, potentially keeping interest boost the dollar, but we anticipate it will approach
rates elevated. Tariffs might strengthen the dollar. 1.12 (versus the euro) by end-2025.

But the dollar appears overvalued based on fair We advise investors to use periods of further dollar
value metrics. We believe markets are overestimating strength to decrease exposure through hedging,
the likelihood of prolonged high rates by the Fed. shifting USD cash and fixed income to other curren-
cies, and using options.

The US dollar looks stretched

DXY Index (lhs), US 10-year Treasury yield, in % (rhs)

108 5.1

106 4.7

104 4.3

102 3.9

100 3.5
Oct Nov Dec Jan Feb March April May June July Aug Sept Oct
2023 2023 2023 2024 2024 2024 2024 2024 2024 2024 2024 2024 2024

DXY US 10y Treasury yield, in % (rhs)

Sources: Bloomberg, UBS, as of November 2024

35
EUR: Low expectations GBP and AUD: Our preferred developed market
While we do not expect Eurozone growth to be ro- carry currencies
bust, we do expect it to be somewhat stronger than In the UK and Australia, given the mix of inflation
it was in 2024. And with sentiment on Europe and economic growth dynamics, we think interest
muted, we see scope for a positive surprise for the rates could be cut more slowly than in other regions,
euro. In our base case, we also do not expect EUR supporting positive total returns against peers.
government bond yields to decline much further
from already low levels. We expect AUDUSD and GBPUSD to trade at 0.68
and 1.35, respectively, by December 2025.
The euro may stay weak against the dollar in the
short term, but we believe it will strengthen over the JPY and CNY: Strength for yen, weakness for
year, projecting an EURUSD rate of 1.12 by the end yuan
of 2025. We anticipate the yen will strengthen in 2025, pre-
dicting USDJPY to hit 145 by year-end. First, we be-
CHF: Rate cuts almost complete lieve the yen is undervalued, not reflecting the cur-
After the Swiss National Bank cut interest rates three rent yield differences with the US dollar. Second, we
times in 2024, we expect only two more 25-basis- expect the yield gap between the US and Japan to
point cuts in 2025. We do not expect Swiss bond close in 2025, as the Federal Reserve reduces rates
yields to move lower from already low levels. On a rel- while the Bank of Japan raises them. Third, politi-
ative basis, this should support the CHF as yield differ- cally, President-elect Trump has criticized the yen’s
entials become less negative for the Swiss currency. weakness, and Japanese policymakers are also
Safe-haven demand could remain a CHF-supportive against it weakening beyond 160. A stronger yen
factor if geopolitical tensions remain elevated. could align with both US and Japanese interests.

We expect USDCHF to trade at 0.84 by end-2025. We expect USDCNY to rise toward 7.5 by end-2025
as trade tariffs contribute to yuan weakness, even as
the People’s Bank of China leans against CNY depre-
ciation by stabilizing its daily USDCNY fixing rate.

36
Go for gold

We expect gold to build on its gains in 2025. Lower interest rates, persistent geopolitical risks,
and strong dollar-diversification trends likely see investor and central bank buying continue.
Outside gold, we also see long-term opportunities in copper and other transition metals, with
demand increasing alongside higher investment into power generation, storage, and electric
transport.

Further upside for gold of gold in 2024, and these volumes can be sustained
Gold reached new record highs, with the price top- well above the prior decade’s average of around 325
ping USD 2,790/oz—a gain of 35% to 30 October metric tons a year. Additionally, we see other tradi-
2024. Since Election Day, the metal has faced mod- tional drivers of gold like lower real interest rates, fad-
est setbacks, as investors focused on the decisive na- ing dollar strength, and rising geopolitical uncertain-
ture of Trump’s victory and the potential benefits of ties reasserting themselves in the year ahead.
Trump’s policies on US stocks.
We think prices could rise to new highs in 2025, un-
We expect the de-dollarization trend among central derpinned by a step higher in exchange-traded
banks and private asset managers to continue. We es- funds inflows; the third quarter saw the strongest
timate central banks bought around 900 metric tons net inflows in a quarter since 1Q22.

Central banks‘ demand for gold has supported gold prices

Purchase of gold by central banks, in metric tons

900
325

Yearly average (past decade) 2024E

Sources: IMF, World Gold Council, UBS, as of November 2024

37
More in metals
Industrial metals have faced headwinds in recent Copper is our high-conviction
months, as weak economic data from China and pick among exchange-traded
fears of a cutback in US climate-related spending
have outweighed concerns about longer-term supply base metals.
shortages. However, in 2025, we believe tightening
fundamentals will again support metal prices as the
global energy transition continues and the number
of new mining projects disappoints. For example, we
see copper prices reaching a near-record USD
11,000 per metric ton by end-2025. We also see op-
portunities in more niche minerals like manganese,
rare earths, and lithium. Owing to the complexities
of attaining direct exposure, we prefer buying select
miners and processors that have exposure to these
metals.

Oil: Higher prices on supply disappointments

Consensus expects the oil market to be oversupplied
next year. But we think that current low prices could
lead to lower supply growth than expected in the
US. Also, OPEC+ is likely to be cautious about in-
creasing supply if the market cannot handle it, and
renewed sanctions on Iran and Venezuela could af-
fect supply.

Meanwhile, solid economic growth, global interest

rate cuts, and fiscal stimulus measures should mod-
erately increase oil demand. With financial position-
ing in oil currently low, we expect moderately higher
crude oil prices in 2025 and favor yield-generating
strategies that take on the risk that the oil price will
not fall below a certain level.

38
Time for real estate

We think the outlook for global residential and commercial real estate investments is bright.
With declining and constrained supply paired with rising demand, we see opportunities in sec-
tors including logistics, data centers, and multifamily housing. Investors should focus on quality
assets and strategic diversification to capitalize on these favorable market dynamics.

The global real estate market is poised for greater Investment opportunities
activity in the year ahead, driven by lower capital Both public and private real estate markets are trad-
costs, increased debt availability, and over USD 400 ing at attractive yield gaps and offer good discounts,
billion in private capital ready to be deployed. Al- in our view. We recommend focusing on sectors
though transactions had previously halved due to with strong fundamental dynamics:
high leverage costs, the current environment of
lower interest rates and tighter borrowing spreads • Commercial: Logistics properties, data centers,
should boost deal activity. and telecommunication towers are well-posi-
tioned, particularly in the US and Europe, benefit-
Supply and demand dynamics improving ing from trends like e-commerce and AI, and have
Conditions vary across regions and markets, but, barriers to entry.
overall, robust real estate demand is meeting con-
strained new supply. Since COVID-19, construction • Residential: Broad exposure to multifamily, senior,
activity in both commercial and residential sectors and student housing sectors is advisable, although
has been limited due to increased regulation and we are less optimistic on the sector in the UK and
higher costs. This has resulted in a scarcity of new, China.
quality space, even in the challenged US office mar-
ket. • Retail: Selective opportunities exist, particularly in
need-based retail properties.
These dynamics are likely to lead to decreasing va-
cancy rates, rising rental growth, which we believe • Office market: Caution is advised, with a focus on
will drive capital appreciation over the next several prime, high-quality central office spaces, which
years. should outperform lower-tier, older properties.

39
Public market performance
In listed markets, we anticipate double-digit perfor- We expect real estate to revive
mance overall. While US real estate companies have in 2025, with opportunities
strong balance sheets, Singapore developers and
REITs, along with Japanese developers, are expected across commercial and
to benefit most from interest rate cuts, and we be- residential sectors.
lieve these likely improvements are not yet fully
priced in compared to their US and European coun-
terparts.

Private market strategy

In private markets, we expect similar performance.
We focus on core/core-plus real estate managers ca-
pable of generating income and capital growth, par-
ticularly in our key sectors. We also favor managers
who can execute opportunistic acquisitions through
take-privates or joint ventures with asset owners
seeking liquidity. Additionally, we see opportunities
in real estate debt.

Regional variations in direct real estate

At a regional level, direct real estate investments in
Canada, the US, and Continental Europe may, in our
view, yield the most attractive returns owing to
strong rental growth and falling interest rates. Con-
versely, we are less optimistic about the UK residen-
tial market because of affordability issues. In China,
we foresee challenges and expect residential invest-
ments to deliver lower-than-average returns.

40
41
Decade Ahead
The 5Ds—debt, deglobalization, demographics, decarbonization, and dig-
italization—will be significant forces in the decade ahead that present
opportunities and risks for investors. In aggregate, we expect them to
lead to higher growth and periods of higher inflation over the long term.

Debt: Growth effect Inflation effect

A growing concern Investment idea Real assets

Fueled by the extraordinary fiscal stimulus follow- bond yields on periodic fiscal sustainability concerns.
ing the COVID-19 pandemic, aging populations, Higher taxes could be one way of accounting for
and increased defense spending, government debt higher debt levels.
has grown considerably since the beginning of the
decade. With a higher risk that governments lean on central
banks to finance deficits, we advise boosting expo-
With debt levels now much higher, governments sure to real assets (including equities, real estate, in-
have reduced capacity to deal with a future reces- frastructure, and gold) in portfolios, as they have a
sion or inflationary shock. There is therefore a greater chance of matching or exceeding rates of in-
greater risk of swings in long-dated government flation than cash or fixed income.

Global debt is seen rising further, driven by the US and China

Public debt in % of GDP, global average, US and China, including IMF projections (shaded area)

140 US

120 China

100
Global average
80

60

40

20

0
2000 2003 2006 2009 2012 2015 2018 2021 2024E 2027E

US China Global average

Sources: IMF, UBS, as of November 2024

42
Deglobalization: Growth effect Inflation effect
Shifting paradigm Investment idea Companies exposed to
infrastructure and reshoring

In recent years, the world has become less global, in-

fluenced by the pandemic, rising nationalism, geo- Any increase in trade and capital flow restrictions
political tensions, and technological changes. These could lead to higher costs for consumers and busi-
factors have led countries to prioritize domestic in- nesses, slower global growth, and increased infla-
terests, resulting in increased trade barriers and pro- tion. We also expect in­creased spending on defense
tectionist policies. The election of President Trump, to raise lev­els of debt and inflation.
with his “America First” approach, could further ac-
celerate these changes. Despite these challenges, deglobalization offers
growth opportunities in certain sectors. As countries
Active conflicts in regions such as Eastern Europe focus on cyber and national security, investment and
and the Middle East add to this trend, creating insta- innovation in these areas may rise, creating new
bility and discouraging international collaboration. growth avenues. Companies involved in reshoring,
Technological advancements, while facilitating global automation, and national security could benefit from
communication, have also enabled more self-suffi- increased demand.
cient economic strategies.

US-China trade tensions have led to a rise in US imports from Mexico

US imports from China and Mexico, in USD millions, 12-month moving average

50,000

Imports from China

40,000

30,000
Imports from Mexico

20,000
2014 2016 2018 2020 2022 2024
US imports from China US imports from Mexico

Sources: Bloomberg, UBS, as of November 2024

43
Demographics: Growth effect Inflation effect

Longevity in focus Investment idea Companies exposed to longevity

Demographics are slow-moving, but we have al- ent both challenges and opportunities. How societ-
ready seen significant shifts in demographic patterns ies—individually and collectively—choose to manage
since the turn of the decade. According to the UN, migration will play an important role in determining
the global population over 65 has grown by around the impact on economic growth and inflation.
100 million in the past five years.
For investors, we expect aging populations in the
The combination of aging populations in the US, Eu- developed world to contribute to the growing emer-
rope, and North Asia with young and fast-growing gence of a transformational innovation opportunity
populations in Africa and South Asia is likely to pres- in the field of human longevity.

Strong regional disparities in working-age population growth

Working-age population (age 15-64) as % of total population, including UN projections

75

70 East Asia

South Asia
65

North America
60
Europe
Africa
55

50
1970 1980 1990 2000 2010 2020 2030E 2040E 2050E 2060E

Africa East Asia Europe North America South Asia 2024

Sources: United Nations, Department of Economic and Social Affairs, Population Division (2024), UBS, as of November 2024

44
Decarbonization: Growth effect Inflation effect

Power and resources Investment idea Companies exposed to power

and resource innovation

Since the start of the decade, renewable energy has

accounted for a greater share of the global energy demand rises owing to increased use of artificial in-
mix, with fossil fuels accounting for a lesser share. telligence. Despite these challenges, the substantial
Looking ahead, we anticipate that regulatory pres- investment needed to meet rising energy demand
sure to decarbonize will persist, and several factors and sustainability goals could also stimulate eco-
could drive up the prices of scarce resources, includ- nomic growth.
ing resource protectionism, environmental taxes,
higher insurance costs, and restrictions on certain We believe the biggest investment opportunity in
energy sources. the field is with power and resource innovation (see
page 33).
It remains uncertain whether societies are prepared
to accept higher energy costs, especially if energy

Renewable energy gaining share in global electricity mix

Breakdown of energy contribution by source, TWh (lhs), and share of total renewables in electricity mix, % (rhs)

30,000 34

25,000 32

20,000 30

15,000 28

10,000 26

5,000 24
2019 2020 2021 2022 2023 2024 to
end-Aug
Fossil fuel Wind Solar Other renewables Renewables share

Sources: Ember, UBS, as of November 2024

45
Digitalization: Growth effect Inflation effect

The AI revolution Investment idea Companies exposed to AI

We believe artificial intelligence could prove to be magnitude. The PC increased labor productivity by
one of the most influential innovations of the cen- 18% from 1986 to 2000, and the internet by 20%
tury. While most market attention so far has focused from 2000 to present. Assuming a 15% productivity
on the firms enabling the technology, we ultimately boost from AI, we estimate the value creation could
expect AI to drive efficiency, innovation, and new amount to USD 4.4 trillion.
business models across sectors, from automating
routine tasks to enabling advanced data analytics. For investors, at a macroeconomic level, we believe
the AI revolution is likely to help lower inflation,
If AI’s potential can be realized, we believe it could boost growth, and therefore result in higher real in-
augur a productivity revolution, and contribute to terest rates in the years ahead. At a company level,
lower prices for various goods and services and we see potential across the enabling, intelligence,
higher rates of economic growth. Historical exam- and application layers (see page 31).
ples can provide some context for the potential

The timeline from innovation to productivity growth has been shrinking

Years from innovation to productivity growth, JPMorgan estimates for AI

1769 1880 1981 2023

Internet AI
Steam engine Electricity

61years
32 years
15 years
7
years

Sources: JPMorgan, Cras (2021), NBER, BEA, as of December 2023

46
Asset class expectations
Since the beginning of the decade, cash returns have struggled to surpass
inflation and bonds have faced headwinds from rising interest rates. In
contrast, equities have thrived, and private markets and commodities
have offered robust returns. Looking ahead, we expect equities and pri-
vate markets to continue to offer the highest potential returns.

Cash Government bonds

Recent years have been dismal for real returns on Government bonds have had one of the worst five-
cash, with higher interest rates not sufficient to offset year periods in modern history, with the Bloomberg
the surge in inflation. Since the start of the decade, US Aggregate Government bond index delivering a
the real purchasing power of cash has fallen by 8% nominal negative return of 2.8%.
in US dollars, 13% in euros, and 6% in Swiss francs.
Conditions for government bonds have improved
We expect cash to remain among the worst-per- lately, with yields now higher and lower inflation
forming major asset classes. A rate-cutting cycle is and central bank rate cuts ahead.
underway, eroding future returns on cash. Mean-
while, secular trends such as deglobalization, decar- That said, because of strains on public finances, in-
bonization, higher debt, and an aging population vestors may increasingly demand higher risk premia
may put periodic upward pressure on inflation, erod- for government bonds. And while central banks may
ing cash’s after-inflation returns. use their balance sheets to smooth financial market
functioning, investors may need to prepare for
We advise investors to shift excess cash deposits and greater volatility on longer-dated debt.
money market funds into assets that provide higher
and more durable sources of income. We believe investors should therefore supplement
core government bond holdings with alternative
sources of income, including investment grade
credit, fixed income hedge fund strategies, or private
credit funds.

47
Credit sectors and markets through higher productivity and
profit margins. We also expect equities to suffer less
Corporate debt has also faced headwinds in recent of a drag from higher inflation than fixed income,
years amid rising rates, high inflation, and the shock since leading companies should be able to pass on
of the pandemic. But prospects have revived amid higher costs through higher prices.
stronger-than-expected US growth and healthy con-
sumer and corporate balance sheets. We expect We believe equities will likely remain the key driver
higher returns from corporate credit than in recent of long-term portfolio growth. We advise investors
years. to maintain adequate exposure to developments in
AI, as well as to ensure global diversification.
We do see challenges in the years ahead, however,
particularly as bond investors digest changes in in-
vestment needs, bond issuer profitability, and the
composition of bond indices. But we believe a diver- Alternatives
sified allocation to credit remains a key part of a bal-
anced portfolio. Annualized returns on global private equity so far
this decade have outpaced those on global stocks,
according to data from Cambridge Associates, and
opportunities have expanded, as companies have
Equities delayed or avoided listing on public markets. Sepa-
rately, private credit funds have expanded into areas
Despite a challenging start to the decade, equities vacated by bank lenders, with direct lending achiev-
have delivered very strong performance over the ing higher returns than leveraged loans.
past five years. Returns have been led by the US,
with the S&P 500 returning around 111% over the We expect continued strong returns from private mar-
period, at the time of writing. Technology stocks kets over the next 15 years, with the highest absolute
flourished during the pandemic and have gained an returns from private equity. We also expect a growing
additional boost in recent years by advances in artifi- private markets opportunity set, given the scale of
cial intelligence. capital required for digitization and decarbonization.

While US equity market valuations are now higher For investors willing and able to tolerate lower li-
than historical averages, we are positive on the long- quidity and less transparency, alternatives have be-
term outlook for overall equity market returns. Over come both an important driver of returns and a
the coming years, we expect the commercialization portfolio stabilizer.
of AI to benefit top US tech firms as well as other

48
Commodities Currencies
The UBS Bloomberg CMCI Composite Index has re- The US dollar has outperformed most major curren-
turned around 75% over the past five years, helped cies in the decade so far. The trade-weighted dollar
by rising global demand for energy and industrial index has appreciated by around 10% since the start
metals. High inflation has boosted demand for com- of the decade. Now, the US currency trades at
modities from inventors seeking a hedge. strongly overvalued levels compared to most of its
peers, in our view. We estimate purchasing power
Looking ahead, a range of long-term forces will parity for EURUSD at 1.25.
likely affect the outlook for the asset class. Deglobal-
ization could lead to regional scarcities. The shift to Looking forward, we expect the forces that have
electric vehicles and continued investment in zero- supported the USD in recent years to fade, and large
carbon infrastructure should boost demand for a US fiscal and current account deficits could start to
range of metals and minerals. And increased use of exert downward pressure on the currency.
AI is boosting energy demand. At the same time,
while gradual, the process of decarbonization should
ultimately reduce the share of oil and gas in the total
energy mix.

Overall, commodity volatility could be elevated in the

years ahead, so we recommend a tactical and ac-
tively managed approach to long-term commodity
exposure.

49
How to plan ahead?
Our strategic messages in focus

» Put cash to work » Optimize your leverage

» Strengthen your core » Be active
» Diversify with alternatives » Go sustainable

50
Review your plan

Developing a strategic plan that links goals with strategies can improve
investors’ chance of success and help them stay focused on the bigger
picture amid potential market turbulence.

Our Liquidity. Longevity. Legacy.* approach can help gevity strategy. We believe this is best invested in a
investors pursue wealth goals over different time well-diversified global portfolio, with the objective
frames: of balancing long-term returns with diversification
to reduce volatility and manage withdrawal risks.
• Liquidity: We recommend holding sufficient funds
to cover the next three to five years’ worth of • Legacy: Excess funds beyond Liquidity and Longev-
short-term expenses, liabilities, and spending plans ity needs can be in a Legacy strategy, focusing on
in a Liquidity strategy mainly using cash and short- goals beyond an investor’s lifetime, like bequests
term bonds. This can offer peace of mind during or philanthropy. With immediate needs covered,
market volatility, and a disciplined process of this strategy can focus on aiming to maximize
drawing on, and refilling, the strategy during bear growth through equity or illiquid strategies or
markets can help generate performance over time. impact investing. Effective legacy planning can
help maximize wealth transfers, impact, and sup-
• Longevity: Funds needed to meet financial goals ports philanthropy.
throughout an investor’s life should be in a Lon-

The next 5 years - Beyond your

3-5 years lifetime lifetime

Liquidity Longevity Legacy

Cash flow for For longer-term For needs that go
short-term expenses needs beyond your own

* Time frames may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or
guarantee that wealth, or any financial results, can or will be achieved.

51
9 Put cash to work and secure durable income
Cash’s long-term underperformance compared to Switching cash into high-quality fixed income can
other asset classes is a structural phenomenon. lock in yields and help dampen portfolio volatility.
Stocks have beaten cash in 86% and 100% of all
10- and 20-year holding periods, respectively, and by Deploying excess cash into equity income or bal-
more than 200x overall since 1945. anced strategies can provide a more long-lasting
source of return and increase the likelihood of beat-
The imperative to put cash to work is likely to grow ing inflation over the long term.
in 2025: With interest rates likely to fall further, in-
vestors will earn progressively lower returns and Annuities should also be considered, as they can
will need to find alternative, more durable sources play an important role in providing greater stability
of income. and predictability to income streams.

How much would USD 100 invested in 1945 be worth today?

Cash Bonds 60/40 portfolio Stocks

USD 1,794 USD 4,922 USD 86,151 USD 405,181

Total returns on cash (1-3m T-bills), stocks (S&P 500 total return), bonds (US Treasuries Intermediate-Term), and a 60/40 balanced portfolio
(60% S&P 500 and 40% US Treasuries Intermediate), in USD.
Note: Past performance is not a guarantee of future results.
Sources: Morningstardirect, UBS, as of November 2024

52
9 Strengthen your core
Investors can build an effective portfolio with a vari- versified effectively across asset classes, geographies,
ety of individual investments. But there is a risk that and sectors, and left alone to grow wealth consis-
portfolio complexity can lead investors to lose sight tently for the long term.
of their overarching goals, particularly when markets
become more volatile or when financial news head- Establishing such a core and letting it deliver com-
lines seem pressing. pounded returns over time can provide investors
with the confidence that their financial goals are ac-
To tackle this, we believe that investors should im- counted for while freeing up time and mental en-
plement a “core” component in their wealth man- ergy to pursue other passions or to seek tactical sat-
agement strategy. The core should be a portfolio di- ellite opportunities.

Core

For illustrative purposes only.

Source: UBS

53
9 Diversify with alternatives
By including an allocation to private equity, private Our analysis indicates that global discretionary
debt, private infrastructure, and/or private real estate macro hedge funds have historically shown an aver-
into portfolios, investors can diversify sources of re- age correlation of 0.2-0.4 with various bond in-
turn and potentially enhance portfolio growth. We dexes since 1997, and exhibit negative downside
believe that investors can consider replacing around correlation during periods of financial stress. We
30% of their public equity exposure with private believe investors should consider having around
markets, depending on their tolerance for illiquidity. 10% in hedge funds, funded by a combination of
bonds and equities.
In private markets, we like private credit, value-ori-
ented buyout, and secondaries including infrastruc- In hedge funds, we favor low net equity long/short
ture; and thematically, we favor software, health, strategies, macro, and multi-strategy, and select al-
and climate. ternative credit.

Meanwhile, exposure to select hedge funds can

play various roles in a portfolio, acting either as a
pure diversifier or as a substitute for other assets.

An allocation to private equity has helped generate performance

Historical analysis of adding private equity in a portfolio between 2004 and 1Q24

400

350

300

250

200

150

100

50

0
1Q06 1Q08 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20 1Q22 1Q24

40% Global equities / 40% Global bonds / 20% Private equity 60% Global equities / 40% Global bonds

Indices: MSCI ACWI, Bloomberg Global Aggregate, CAPE Global Private Equity
Note: For a portfolio starting in 3Q04.
Sources: Bloomberg, Cambridge Associates, UBS, as of September 2024

54
9 Optimize your leverage
Borrowing is risky, but we believe that proactive, • Currency management: Borrowing in foreign cur-
prudent, and strategic borrowing can enhance an in- rencies can help manage exchange rate risks asso-
vestor’s financial plan, especially as interest rates fall. ciated with future foreign income and offer addi-
tional funds for domestic investments.
If managed correctly, borrowing can help with:
• Boosting return potential: For those with a high
• Managing liquidity: A flexible line of credit can risk tolerance, borrowing could potentially lead to
provide immediate access to funds without the higher long-term gains if returns exceed borrow-
need to sell assets, reducing the necessity of hold- ing costs, particularly as interest rates decline.
ing excess cash. This can be beneficial for handling However, this strategy is risky, as leverage can
tax bills, capital calls, or retaining the flexibility to amplify both losses and gains.
make larger investments.
Investors should carefully compare loan rates with
• Improving diversification: Borrowing against exist- expected returns, consider refinancing and interest
ing assets to invest in less correlated assets may rate risks, and be aware of the potential for margin
help smooth portfolio fluctuations and broaden calls during market fluctuations.
return sources, with future cash flows used to
gradually reduce debt.

As central banks cut rates, falling costs may increase the appeal of borrowing strategies
12-month rolling returns and hypothetical borrowing costs
A 60% stock, 40% bond portfolio would have yielded
30 returns higher than borrowing costs in 73% of
24-month periods, by an average of 3.4% per year.
25

20

15

10

₋5

₋10

₋15
1988 1992 1996 2000 2004 2008 2012 2016 2020 2024

Starting borrowing cost (1m SOFR + 3%) Annualized 24-month 60/40 portfolio return
Annualized 24-month borrowing cost, 1m SOFR + 3%

Indices used for 60/40: S&P 500 total return, Bloomberg government bond index, total return
Sources: Bloomberg, UBS, as of November 2024. Portfolio is 60% S&P 500, 40% government bonds. For illustration purposes only.

55
9 Be active
The investment industry has undergone a passive covered. An active approach to investing can also
revolution in recent years. In 2023, assets held in enable investors to take advantage of changing vola-
global passive equity funds (USD 15.1 trillion) over- tility conditions, generating yield when volatility is
took assets in active funds (USD 14.3 trillion) for the high, or hedging portfolios when volatility is low.
first time, according to LSEG Lipper. But investors
need to ensure they are balancing their exposure to In bonds, the complexities of managing weights,
passive and active strategies effectively. maturities, cash flows, duration risk, interest rate
risk, and credit risk mean that actively managed
In equities, passive investing can be a good way to funds can often offer greater convenience and supe-
quickly and cheaply add exposure to broad markets. rior risk management than investors trying to man-
But for investors looking to add exposure to new or age single bond exposure themselves.
less prominent markets, including small caps, emer-
gent growth themes, or emerging markets, passive Generating alpha is also a core aim of alternative in-
investments may be too broad to navigate fast- vestment managers.
evolving industries or companies that are not as well

Active investing offers the opportunity to beat the benchmark

5-year success rate (ann. return), % of managers beating the benchmark

Equities Fixed income

94% 96%

81%
68% 68% 67%
58%
51%
23%

23%

Large core Small core Foreign Div. emerging Core fixed Global fixed Preferred Multi-sector EM debt
large core markets income income bonds

Benchmarks considered: in equities, S&P 500 (Large Core), Russell 2000 (Small Core), MSCI ACWI ex US (Foreign Large Div. Core), MSCI EM (Div. EM).
In fixed income: Bloomberg US Aggregate (Core FI), Bloomberg Global Aggregate (Global FI), ICE BofA Fixed Rate Preferred (Preferred), Bloomberg US
Universal (Multi-Sector Bonds), JPM EMBI Global Diversified (EM Debt). Success rates may be higher than actual experiences in certain categories due
to potential survivorship bias.
Source: UBS, as of November 2024

56
9 Go sustainable
All major asset classes, including equities, bonds, cies related to ESG issues. They thus may offer differ-
hedge funds, and private markets, offer sustainable entiated investment opportunities.
options, which have shown similar risk and return
characteristics to traditional investments. With the And in private markets, sustainable strategies focus
return of President Trump to the White House, we on sectors such as renewable energy and sustainable
expect volatility but believe that the longer-term per- agriculture, and aim to achieve positive environmen-
formance of diversified sustainable investing strate- tal and social outcomes while providing diversifica-
gies will be driven more by investment fundamentals tion and potential for competitive returns.
and the macro environment than by politics.

Returns of global indices

In stocks, we think investors can consider the equi-
ties of companies that are demonstrating improve- 1-year 5-year
ments or leadership in ESG principles; or in fixed in- MSCI ACWI 33% 11.1%
come; bonds issued by multilateral development MSCI ACWI ESG Leaders Index 33% 11.1%
banks or those with stated green intentions; or Bloomberg US Treasury 5-10 9% -0.7%
credit strategies with an active approach. Solactive Global MDB Bond USD 5-10 9% -0.7%
MSCI USA 38% 14.7%
In alternatives, consider sustainable hedge funds. MSCI USA ESG Leaders 38% 15.1%
Such funds incorporate ESG factors into their invest- Note: 5-year return is annualized
ment processes, aiming to exploit market inefficien- Source: Bloomberg, UBS, as of end October 2024

Philanthropy and blended finance

We see a growing opportunity set in investments that model. Philanthropic or concessionary funding can
support sustainability and impact goals while aiming help attract commercial investors to these areas by re-
for competitive returns. However, some social and en- ducing risks and encouraging more investment
vironmental issues cannot be easily addressed by in- through structures like blended finance. While promis-
vestors seeking market-rate returns owing to factors ing, blended finance deals are complex and need
like size, development stage, location, or business thorough assessment to meet investor expectations.

57
58
Forecasts
Economy
GDP (%)
2024E 2025E 2026E 2027E
US 2.7 1.9 1.6 1.8
Canada 1.1 1.6 1.9 1.7
Japan -0.2 1.1 0.6 0.6
Eurozone 0.7 0.9 1.1 1.2
UK 0.9 1.5 1.3 1.3
Switzerland 1.4 1.3 1.6 1.6
Australia 1.2 2.0 2.2 2.1
China 4.8 4.0 3.0 3.6
India 6.7 6.3 6.6 6.8
EM 4.4 4.0 3.6 4.0
World 3.2 2.9 2.6 3.0

Inflation (%)
2024E 2025E 2026E 2027E
US 3.0 2.6 2.5 2.5
Canada 2.4 2.0 2.0 2.0
Japan 2.6 2.2 2.1 2.1
Eurozone 2.4 2.1 2.0 2.0
UK 2.5 2.3 2.1 2.0
Switzerland 1.1 0.8 1.1 1.0
Australia 3.3 2.7 2.8 2.8
China 0.4 0.1 -0.2 0.5
India 4.7 4.2 4.3 4.5
EM 8.2 4.0 3.0 2.8
World 5.8 3.3 2.7 2.6
Source: Haver, CEIC, National Statistic, Bloomberg, UBS, as of 14 November 2024

59
Asset classes

Spot June-25 Dec-25

Equities
S&P 500 5,894 6,300 6,600
Eurostoxx 50 4,790 4,850 4,900
FTSE 100 8,109 8,100 8,200
SMI 11,640 12,000 12,200
MSCI Asia ex-Japan 708 780 800
MSCI China 65 67 74
Topix 2,692 2,810 2,850
MSCI EM 1,090 1,180 1,220
MSCI AC World 1,028 1,090 1,140

Currencies
EURUSD 1.06 1.09 1.12
GBPUSD 1.27 1.33 1.35
USDCHF 0.88 0.85 0.84
USDCAD 1.40 1.37 1.35
AUDUSD 0.65 0.68 0.68
EURCHF 0.94 0.93 0.94
USDJPY 155 150 145
USDCNY 7.22 7.50 7.50

Interest rates, in %
USD 4.58 3.83 3.33
EUR 3.25 2.00 2.00
GBP 4.75 4.25 3.75
CHF 1.00 0.50 0.50
JPY 0.25 0.75 1.00

10-year yields, in %
USD 10y Treas. 4.45 4.00 4.00
EUR 10y Bund 2.39 2.25 2.25
GBP 10y Gilts 4.52 4.00 4.00
CHF 10y Eidg. 0.39 0.50 0.50
JPY 10y JGB 1.05 1.20 1.30

Commodities
Brent crude, USD/bbl 72.3 80 80
WTI crude, USD/bbl 68.4 75 75
Gold, USD/oz 2,573 2,850 2,900
Silver, USD/oz 30.4 36 38
Copper, USD/mt 9,047 10,000 11,000
Source: SIX Financial Information, UBS, as of 14 November 2024

60
Impressum

Year Ahead 2025 – UBS House View

This report has been prepared by UBS AG, UBS AG London Branch,
UBS Switzerland AG, UBS Financial Services Inc. (UBS FS),
UBS AG Singapore Branch, UBS AG Hong Kong Branch, and
UBS SuMi TRUST Wealth Management Co., Ltd.
Please see important disclaimers at the end of the document.

This report reflects the insights and perspective from the entire CIO team
across the globe and demonstrates the intellectual leadership of UBS.

Global Chief Investment Officer

Mark Haefele

Editor in Chief
Kiran Ganesh

Supervisory analysts
Aaron Kreuscher
Jess Hoeffner

Editorial deadline
18 November 2024

Publishing date
21 November 2024

Design
CIO Content Design
UBS Switzerland AG

Cover photo
Getty Images

Languages
English, German, French, Italian, Spanish, Portuguese,
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Contact
ubs.com/cio

SAP-Nr. 82251E-2401

This publication is printed on 100% recycled paper, certified by the Forest Stewardship Council (FSC).

61
Global asset class preferences definitions
The asset class preferences provide high-level guidance to make investment decisions. The preferences reflect
the collective judgement of the members of the House View meeting, primarily based on assessments of ex-
pected total returns on liquid, commonly known indexes, House View scenarios, and analyst convictions over
the next 12 months. Note that the tactical asset allocation (TAA) positioning of our different investment strate-
gies may differ from these views due to factors including portfolio construction, concentration, and borrowing
constraints.

Attractive: We consider this asset class to be attractive. Consider opportunities in this asset class.
Neutral: We do not expect outsized returns or losses. Hold longer-term exposure.
Unattractive: We consider this asset class to be unattractive. Consider alternative opportunities.

Note: For equities, we have collapsed “Most Attractive” with “Attractive” and “Least Attractive” with “Unat-
tractive” from the five-tier rating system that is found in the Equity Compass into 3 tiers.

Cautionary statement regarding forward-looking statements

This report contains statements that constitute “forward-looking statements,” including but not limited to
statements relating to the current and expected state of the securities market and capital market assumptions.
While these forward-looking statements represent our judgments and future expectations concerning the mat-
ters discussed in this document, a number of risks, uncertainties, changes in the market, and other important
factors could cause actual developments and results to differ materially from our expectations. These factors
include, but are not limited to (1) the extent and nature of future developments in the US market and in other
market segments; (2) other market and macroeconomic developments, including movements in local and in-
ternational securities markets, credit spreads, currency exchange rates and interest rates, whether or not aris-
ing directly or indirectly from the current market crisis; (3) the impact of these developments on other markets
and asset classes. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or
alter its forward-looking statements whether as a result of new information, future events, or otherwise.

Emerging Market Investments

Investors should be aware that Emerging Market assets are subject to, among others, potential risks linked to
currency volatility, abrupt changes in the cost of capital and the economic growth outlook, as well as regula-
tory and sociopolitical risk, interest rate risk and higher credit risk. Assets can sometimes be very illiquid and li-
quidity conditions can abruptly worsen. CIO GWM generally recommends only those securities it believes have
been registered under Federal US registration rules (Section 12 of the Securities Exchange Act of 1934) and in-
dividual State registration rules (commonly known as “Blue Sky” laws). Prospective investors should be aware
that to the extent permitted under US law, CIO GWM may from time to time recommend bonds that are not
registered under US or State securities laws. These bonds may be issued in jurisdictions where the level of re-
quired disclosures to be made by issuers is not as frequent or complete as that required by US laws.

Investors interested in holding bonds for a longer period are advised to select the bonds of those sovereigns
with the highest credit ratings (in the investment-grade band). Such an approach should decrease the risk that
an investor could end up holding bonds on which the sovereign has defaulted. Subinvestment-grade bonds are
recommended only for clients with a higher risk tolerance and who seek to hold higher-yielding bonds for
shorter periods only.

62
Nontraditional Assets
Nontraditional asset classes are alternative investments that include hedge funds, private equity,
real estate, and managed futures (collectively, alternative investments). Interests of alternative invest-
ment funds are sold only to qualified investors, and only by means of offering documents that include informa-
tion about the risks, performance and expenses of alternative investment funds, and which clients are urged to
read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and
involves significant risks. Specifically, these investments (1) are not mutual funds and are not subject to the
same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may
lose all or a substantial amount of their investment; (3) may engage in leverage and other speculative invest-
ment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments; there is
generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of al-
ternative investment funds typically will be illiquid and subject to restrictions on transfer; (6) may not be re-
quired to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strate-
gies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including
management fees and other fees and expenses, all of which will reduce profits.

Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any
bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should un-
derstand these risks and have the financial ability and willingness to accept them for an extended period of
time before making an investment in an alternative investment fund, and should consider an alternative invest-
ment fund as a supplement to an overall investment program.

In addition to the risks that apply to alternative investments generally, the following are additional risks related
to an investment in these strategies:

• Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated
with investing in short sales, options, small-cap stocks, “junk bonds,” derivatives, distressed securities, non-US securities
and illiquid investments.
• Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not
all managers focus on all strategies at all times, and managed futures strategies may have material directional elements.
• Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts.
They involve risks associated with debt, adverse changes in general economic or local market conditions, changes in gov-
ernmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate
products, the risks associated with the ability to qualify for favorable treatment under the federal tax laws.
• Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short
notice, and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a
total loss of investment.
• Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware
that even for securities denominated in US dollars, changes in the exchange rate between the US dollar and the issuer’s
“home” currency can have unexpected effects on the market value and liquidity of those securities. Those securities may
also be affected by other risks (such as political, economic or regulatory changes) that may not be readily known to a US
investor.

63
UBS Chief Investment Office’s (“CIO”) investment views are prepared and published by the Global Wealth
Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates (“UBS”),
part of UBS Group AG (“UBS Group”). UBS Group includes former Credit Suisse AG, its subsidiaries, branches
and affiliates. Additional disclaimer relevant to Credit Suisse Wealth Management follows at the end of this
section. The investment views have been prepared in accordance with legal requirements designed to promote
the independence of investment research.

Generic investment research – Risk information:

This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to
buy or sell any investment or other specific product. The analysis contained herein does not constitute a per-
sonal recommendation or take into account the particular investment objectives, investment strategies, finan-
cial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions
could result in materially different results. Certain services and products are subject to legal restrictions and
cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All in-
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Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of
UBS as a result of using different assumptions and/or criteria.

In no circumstances may this document or any of the information (including any forecast, value, index or other
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64
rates may have an adverse effect on the price, value or income of an investment. The analyst(s) responsible for
the preparation of this report may interact with trading desk personnel, sales personnel and other constituen-
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Different areas, groups, and personnel within UBS Group may produce and distribute separate research prod-
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Important Information About Sustainable Investing Strategies: Sustainable investing strategies aim to
consider and incorporate environmental, social and governance (ESG) factors into investment process and
portfolio construction. Strategies across geographies approach ESG analysis and incorporate the findings in a
variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit UBS’s ability to
participate in or to advise on certain investment opportunities that otherwise would be consistent with the Cli-

65
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