The private bank said the pandemic has heavily distorted prices of various assets, creating mispricings that investors can exploit with the view that sooner or later, such prices will revert to their mean levels over time.
Citi Private Bank is “aggressively overweight” the overall equity market, and particularly bullish about emerging markets, US and global small- and mid-cap stocks, positioning for how the world economy recovers from the COVID-19 crisis.
The US private bank is also overweight developed market large-cap equities – apart from the US – and also smiles on global real estate investment trusts (REITs), and gold. Its largest underweight position, meanwhile, is in European government bonds, Japanese government bonds and cash, and short-term US Treasuries.
The firm said that the pandemic has heavily distorted prices of various assets, creating mispricings that investors can exploit with the view that sooner or later, such prices will revert to their mean levels over time.
“Our strategy is to seek to retain or expand exposures to valued income-generating investments and long-term growth opportunities while adding exposure to beaten down assets that may retrospectively appear undervalued a year or more from now,” the bank said in its briefing note on 2021 strategy this week.
David Bailin, chief investment officer, said clients should diversify globally in equities as a way of protecting the downside. In a conference call with journalists, he was asked by this news service how investors can hedge risks when bond yields are so low. Bailin said that clients are often insufficiently diversified on the non-US market side, so being more diversified was an important step. Many markets are not greatly correlated at the moment, so there are also benefits to spreading investments around, he said.
The bank has also issued structured notes, with certain risk limits, as a way for clients to capture some equity exposure but for a controlled measure of risk, Bailin said. Citi Private Bank has issued 75 per cent more of these notes over the past year.
“COVID-19 has changed asset prices on the way in and will change asset prices on the way out,” Bailin said.
“We think non-US markets are going to outperform [this year]…there are a lot of structural overweights we can give to clients,” he continued.
Speaking in the same conference call, Jeffrey Sachs, EMEA head, investment strategy, predicted that sterling will appreciate this year, and UK equities will have upside potential. He believes that this is due to the uncertainty caused by Brexit starting to fade; the fact that the UK has been relatively fast to buy and roll out vaccines, and because UK stocks are undervalued and under-owned in portfolios.
“The risk premium on the UK has come down because of [the process of] Brexit ending,” he said.