UBS Trending for January 29, 2021: Biden, energy and sustainable investing
This is UBS trending every day you give us thirty minutes and we'll give you the most up to the minute market insights intellectual capital and best ideas from UBS and beyond it is Friday January twenty ninth twenty twenty one let's find out what's trending today. The by the administration what does this have White House mean. For the markets and investing we'll discuss the latest on the energy markets and oil prices. Plus we'll discuss the latest trends in sustainable investing and focus on emerging opportunities. All that on today's UBS trending. Thanks for joining us everyone I'm Anthony Pastore. So as the
first full week of president Biden's presidency comes to a close we're going to take a closer look at what happened in his first days of office and what we can expect going forward. Joining us now is UBS head of America's fixed income for the chief investment office Tom McLoughlin Tom nice to have you back here on the show and- it certainly has been a wild week for the markets for a lot of reasons Tom and for once. I think most of it is not primarily being driven by Washington DC which is something we can't say for the last couple of months for short. Film so that being said-
what have you seen for the by the ministration so far that's really caught your attention. Well good morning Anthony. This probably three things- that jump out. Of the first is impeachment of course we'll- get to that in a second. The
second is the notion of reconciliation as a way to basically legislate. Other things other than the budget frankly- and third- the filibuster. So those three things jump out- first the impeachment- the trial that is- that. Is scheduled to take place in the Senate. Which struck me. Was that the-
president was appears. Increasingly anxious to put. The impeachment trial. Behind him and behind Congress and I think the reason for that. Is
he so concerned about the potential for a distraction. From what he really needs to accomplish. Which again in his view is the fiscal stimulus.
And a response to the pandemic. The second thing that jumped out was that both speaker Pelosi and Majority Leader Schumer- have expressed a willingness. Over the last forty eight hours to use budget reconciliation for COVID relief- there are some limitations the ability to do that but- of the fact that they have moved and use the words but reconciliation. As quickly as they have suggest that the- Your of bipartisanship lasted about a week- and that will have some ramifications- for how. Both taxes are taken up later in the year and the notion of infrastructure. Well in the third thing that jumped out was- the explicit statements by senator Manchin of West Virginia and senator cinema. Of Arizona that neither
of the individuals had any intention of killing the filibuster- that- basically gave senator McConnell as the new minority leader- the willingness to accept- the rules. With the adoption of the rules in the Senate which will allow the committee assignments to proceed. And that was actually quite real because if's their mansion and senators in Amman a willing to basically kill the filibuster decades taken off the table. And what
we have is a- a democratic conference in the house and the Senate the will have to rely. Upon reconciliation to get a lot of what they wanted one done. Are there a couple of things that will try to do a bipartisan basis. But it does suggest that the- we'll probably have to reconciliation bills this year. And they'll both be quite massive and they'll lock to have the biggest impact on the on the markets. Right yeah there's
that there certainly is a lot to discuss your time in a you know with with this light blue wave in the Senate what what sectors do you think- I guess from the equity side of the house what do you think will be at the forefront for. Investors here. What you you start with the notion that- the markets have responded to. Much were- quickly towards. Progress on other vaccines. And progress on
stimulus than it has on the prospect of taxes down the line. And that's important to know going in because- when we actually saw rates rise rather abruptly. On election in. Certainly in the November election but particularly in the Georgia election which suggested that the Democrats going to take the majority of the working majority anyway.
Right now all. In the Senate. On that. Precipitated a steeper yield curve. And it suggested that there's going to be incrementally higher rates down the line. Later this year. So with that in mind that we do expect financials to perform better. Of financials tend to perform better with the CPO carbohydrates- the second sector that's worth mentioning is industrials which have underperformed this so for this year in the three weeks that we've gotta grow belts. But
they are essential components. To any move into sustainable energy which of course is something that the by administration really wants to pursue. And we will hear more about next month. Show we. We still remain a positive on. In the fixed income space- moving over to that asset class I'd look to leverage loans- as a hedge against those incremental increases in interest rates.
Are the asset class is already up one point three one point 4% in just three weeks it's reacted very positively whenever we see- indications that you're also going to what then when one thing out quickly at is that we're not expecting yields to go through the roof. This is just an incremental rise. In rates so but within that context- the leveraged loan market actually should perform pretty well. Yeah with all that in my Tom we when you think about the- various initiatives that president Biden has been talking about before the election now. Following election like stimulus healthcare- infrastructure is there any specific legislation you expect will get done now that we have this light blue wave. The I. the way it approach it at the I mean it's obviously- sometimes looking at tell what's happening inside the beltway is looking at real inside a conundrum but- I think the way to break it down is that the blood ministration. Is anxious
to do three things. More than anything else and that is stimulus infrastructure taxation- ideally sequentially. In the in that order. The question the question is what must get done through reconciliation- which can be done on a partisan basis by one party. Taxes for sure we don't expect the GOP to basically exceed to a bipartisan agreement to increase taxes that's highly unlikely so we do expect one of those reconciliation bills to be done later in the year. The question now is whether or not if speaker Pelosi and Majority Leader Schumer can't get a bipartisan deal done on stimulus to the use that first reconciliation to go ahead and try to do something along the lines of the stimulus bill with some components of infrastructure. I think it's
more likely that infrastructure gets tagged on and- connected with taxes later in the year but the fact that the talking about it just reinforces the notion that again it's stimulus. Of infrastructure taxation now in terms of bipartisan opportunities I know that- the by administration is anxious. To go ahead and address immigration immigration reform is devilishly difficult to get done on a bipartisan basis that obviously- is something that a lot of members of Congress run on one way or the other. As a consequence
it's very difficult when they get to Washington to compromise- but it's something that I think the by to Mister she does want to basically introduce sometime later this year the prospects are really uncertain. Description drug obviously is a very hot topic. And I think that's come up a little bit over the course of the last few days- and so we're watching that one very closely in those two- those two specific. Topics immigration and prescription drugs are probably two things that will probably see at least an attempt to get done outside of the rubric of a reconciliation whether it again whether it's done is a great. Question a
tireless. Right of course of course that's something we'll have to be keeping an eye on and I know that you are consistently updating. The potus forty six website with any new in now and- you know in any new information that we need to know to go for. So Tom you know what what are you anticipating the White House is next steps are going to be here. Well you know it's interesting- what's next week we don't spend a lot of time talking about is that foreign crises have way of interfering with the best laid plans regarding domestic policy. Bilateral relationships with China are going to become more pronounced issue for the- by administration we can expect a lot more attention from the White House and you just started to see that over the last couple of days- we also.
Obviously have heard over the course last twenty four hours of the change a vaccine. Is probably gonna get rolled out here in the next week or two. But unfortunately there's also some evidence that. The vaccine from JJ like the ones from internet and Fizer or a little. Bit less. Effective against the
south African variant of the virus and that's that's- certainly concerning news. I think as a consequence. With the notion that bilateral relationships with China again occupy more time we will have to see. We will see I think the
by demonstrations spent no more time again working on the vaccine rollout that's that's job number one for sure- and then of course stimulus and the way that gets through and then and the last point is he hasn't abandoned. The the notion of greentech and addressing climate change I think finally that that's something that make it work right into the infrastructure package whether it's done as a standalone were later in the year- with taxation. Because the infrastructure package this year is probably gonna be interwoven a to a much lesser degree than we saw ten years ago with the American recovery and reinvestment act it'll be interrupted this time- with issues related to renewable energy electric vehicles public transit and that's probably going to be the principal emphasis that we'll see. In terms of infrastructure bill that again whether that happens in three months or six months it is really a fluid situation right now. Right Tom thank you so much it's always good to have your insights and there certainly is. A lot always
going on in brother guards to policy in the news coming out of DC so. Thanks for being here Tom great to see if. My pleasure it's anybody. You too Tom Tom McLoughlin head of fixed income America's for the chief investment office here at UBS we are on social media so you can follow us on linkedin Instagram Twitter and Facebook there you'll find time the content from a best thinkers and intellectual capital they can help you make more informed investment decisions you can always find access as well T.
UBS trending episodes as well as segment highlights. Coming up energy markets are always top of mind for us but especially as the new administration has clean energy on their agenda so what does it all mean for energy markets and oil prices we'll talk about that next. Today's tip of the day the UBS potus forty six report is out as we have discussed a few times this week including today and now there is a dedicated website for it visit UBS dot com forward slash C. I. O. dash potus forty six for in depth coverage on the impact of the by the administration on policy markets the economy and more it will be updated consistently so make sure to check back regularly for any new insights from the chief investment office and the UBS U. S. office
of public policy you can also access the full potus forty six report. From the CIO directly on the site again that website is UBS dot com forward slash CIO dash potus forty six welcome back everyone I'm Anthony Pastore. so the energy sector was the top performing sector two weeks ago yet trader excitement for this area seems to be waiting a little bit on a more long term basis so with the new administration an office and their stance on clean energy and environmentalism what is the outlook for the energy sector joining me now to discuss this and more is Nicki Decker UBS chief investment offices. Energy analyst Americas Nicki very nice to have you here on the show on this- cold east coast winter day but you know Nikki that the biggest headlines out of the markets have been retail stocks this week we've all been watching that but where does the energy sector stand compared to the last time we had you on which was. Towards
the end of twenty twenty. Yeah so- thanks for having me Anthony you know energy activities have been strong in the year to date outperforming. The broader market. I think this is due at least in part to improving macro conditions in the oil markets. Most significantly I think it's been progress on the backseat rollout because says as you would imagine. Oil demand
quality in twenty twenty. As mobility restrictions were enacted in summer is still in place. And the global economy week it didn't it still hasn't fully recovered- but date you know- so cute twenty twenty. We saw the oil market and to become severely oversupplied Nov course- oil prices. Cratered I'd that weighed on the energy equities but you know. Better G. is going to be
a large beneficiary. As the COVID vaccine program is implemented and we do expect oil prices. To rise this year as so global oil demand recovers so. You know I think investors are starting to show some interest in the energy. As
the recovery way. Well you know crew prices she recently so what do you think is pushing price higher and you think this is just the beginning. Yeah well first of all and then being with a wealth behalf because it leaves big directed monitoring downside risks but yeah you know we're feeling. Call it cautiously optimistic about they'll finally climbing out of this a long and very severe downturn. That has plagued our energy for six years now well so what's been pushing oil prices higher well you know first of all. Proving the oil market one. You know I
just mention vaccine hopes are that will enable of war could lead recovery in global oil demand in twenty twenty one but on the supply side as well- you know we had the January OPEC once meeting where surprisingly. A Saudi Arabia let me go one million barrels a day cut. On through the end of March so it would take people together these are pretty supportive of oil market fundamentals your global inventories have been falling so it was sentiment almost of the traders has improved and- we're seeing that price support. Backed price support.
Great Nikki so you don't Biden whisper busy a orders any cited of them on Wednesday some of which halt new oil and natural gas leases and even pushes to review existing permits for fossil fuel development so. All that being said what does that mean for the energy sector. Yeah yeah so there's been a slew of executive orders signed by the president you know none of which call business of price I think president. Biden's
goals are pretty clear. I he wants to transform a the U. S. energy mix to renewables and cleaner fuels. But you know bear in mind the US relies very heavily on that car big based fuels and you know that transition is. Just going to take time and we think. Of the
president understands this and- will move at a thoughtful pace in order to avoid. Up they disruptions body is moving aggressively. First of all set the tone set targets. And
express isn't ministrations intentions to roll out to initiatives. In support of. Renewable fuels. So you know every try. Will accelerate in the U. S. so you're what is
this mean- they- energy sector well you know up. I would say that many energy companies that are currently oil and gas company's intend to participate in the transition the majors of the refineries. Diverse fied services companies and certainly exploration and production companies all have of B. Gandhi investing in cleaner. Energy options a cleaner energy future so for these companies you know we think the long term outlook remains. Very good- but in the near term let's call it the next twelve to twenty four months Anthony it we don't expect a moratoriums or any of the other executive orders really affect entered the operations that all. Companies
have large inventories are permitted drilling site- wells will continue to be thrilled well I and I think the surprise going to be needed for the reasons I decided so of the year we don't see any impact your production in twenty twenty one and to get you know our outlook. Unchanged seraphic- great you here in there's always been a lot you know there's always been a lot of converse running energy markets but particularly now with the new administration so but you can come by and chat with us about a Nicki Decker energy analyst Americas with the chief investment office thanks Nicki. Thank you. Have a great weekend so coming up next we continue our conversations on sustainable investing by looking at some of the top trends in the space and the expectations of the green recovery by the way if you have a question or comment for us here in the studio we love to hear from you send us an email at UBS studios. At UBS .com.
Welcome back to UBS trending everyone I'm Anthony Pastore the world economic forum's annual meeting is happening now except not actually in Davos this year but virtually due to the pandemic of course that doesn't stop the progress that's been ongoing from world leaders when it pertains to addressing the economic environmental social and technological challenges of our complex world joining us now to talk about their thoughts on sustainable investing in trends within the space are my colleague Andrew Lee the head of sustainable and impact investing with the chief investment office and Bruno Bertocci the head of the UBS asset management sustainable equity investors team. Enter a brutal it's really nice to have you on the show and obviously this this is a perfectly timed conversation since Davos would normally be happening in Davos but that clearly it's all virtual this year but it doesn't stop the progress right to intrude into the sustainable investing space is really growing it's something that we've been talking about quite a bit on the show but we're current clearly seeing innovation across the board the white paper that you've written out like ten trends I will dive deeper into some of them with you and Bruno but to start with the broad categories of conversation. That are relevant to investors right now. In a-
look I think I think one of the over arching things as an investor perception of focus is really shifting rapidly right I think. There's a clear realization by investors that sustainability issues are key drivers of investment performance and portfolio resilience and I think. We saw that reflected in the significant growth of assets over the last few years- and certainly in twenty twenty- we've also seen it play out in performance with sustainable investments really. Outperforming last year through the market drawdown as well as the rebound- and so I think the you know Nassar's are certainly looking about performance but really looking ahead. On in positioning portfolios for the long term anticipating risks like. Climate change and inequality- but it's not just about the risk to talk about the opportunities in these areas and so. I think the
prospective investors are taking with their portfolios are I need to understand I need to incorporate sustainability into my portfolios for the long term- and so that's one big thing is that- the investor perception. Is changing and it's changing rapidly- I think the second point to make is that the infrastructure around that is changing pretty rapidly as well right so- everything from regulation which we've seen out of the E. U. as well as other parts of the globe- is. Is supportive- of unsustainable investing in a particular of disclosure for investors- and- and I think that's helping to advance- the- the field as well and then the second point is around data- and the data that the investors need. To incorporate sustainability into their investments effectively and so- I think investor perception shifting the infrastructure behind that whether it's regulatory whether it's policy driven or whether it's data. On
to support that and I think that you know this trend of consumers shifting. Their focus on sustainability governments just shifting their focus companies shifting their for- focus. Investors really need to recognize sustainability. Is important for their portfolio performance this is how to position portfolio. For the go
forward. Great thank and you're so Bruno I want to set the scene here with you what's been the trend in SI growth the what do you think is driving it. Well there couple things driving at the first is. Like Andrew says the data is there. The push by asset owners and by professional investors to incorporate this data to improve decision making death clearly part of it right that's gonna happen. I think the other part is. Well if you don't do
it I mean a lot of the things that are happening in this space is the transition from. Assets that are. Have been. In the past manage you think only financial inputs to the incorporation this new data set right. The and that's happening too because- if you don't do it it seems incomplete that you're really not considering all of the different factors that are going to influence the long term. Success of companies so.
Those two things I think the availability of data the recognition and it's material on drives returns. The other part of it that I think is important is- alignment between the contents of the portfolio. Meaning what. Products and services the companies are providing and- thoughts by the owners of those assets about whether those portfolios are actually contributing to a better world there's- and the and that's really through the nexus of the business model there's this concept that.
Professor Michael Porter from the Harvard Business School coined in two thousand eleven that he called shared value and that is a successful company. For example saves energy and that improves the environment and the improvement in the environment is. Through the functionality of the business model itself it's making the world a better place that's not charity that's not. Full
entropy which is what people used to think about when they talk about sustainable investing this really about modern business models contributing to improvements in the world that we live in and of course. With the focus on climate change that's going to become a bigger deal to. Yes yeah I like the idea of the shared values and that's a great way to describe it as you as you right no it is much broader than just. Philanthropy
on its own or environmentalism so injuring a we're seeing a lot of regulatory change around aside that's particularly prominent in the European Union so what's the CIO's view on how some of these new regulations could impact investors with. These globally diversified portfolios and you expect to see any regulatory or policy similar to that happening here in the U. S. yeah that's a good question Anthony I think I'd mentioned before- you know the E. is at the forefront of regulatory developments in change with regard to- you know sustainability disclosures and sustainable investing- and I think you know more the developments- you know they're related to reporting by European companies. And
European investment funds- but clearly I think this is going to shape- what we see from companies and funds are domiciled elsewhere as well- I think just an example of that if you've got. Investment funds in the E. U. they also own global portfolios right the US companies are in those portfolios and increasingly they're being asked by their investors. You know for better disclosure on certain sustainability topics because investors are requiring from and so. On you know I think that a lot of the regulatory initiatives although they may be at region meeting from the E. U. for example. The U.
taxonomy and others on it's forcing greater levels of disclosure which is going to benefit investors all over the world- and I think in terms of the US- what we've seen from the Biden ministration- is a clearly articulated emphasis. On climate and sustainability issues and so. Our expectation is that we'll see regulatory developments in the US- start to move in the same direction- or at least in a consistent directions so- certainly the FCC has indicated. You know focus on more explicit yes you disclosures- and- and I think that- you know the- we expect that we expect positive developments from that regard with regard to sustainability disclosure- and also supported sustainable investing funds broadly so- you know I think. I
think will also be on just regulatory when you think about what's happening there together with the policy. On any executive orders that- that- president Biden's already signed- you know all of the emphasis that- you know his- his campaign placed on on climate- I think all of these things take can. From a- and how per. Suggest that climate and sustainability issues are going to be important for the administration- so from an investor perspective again important to consider. Right in
a Bruno there's clearly this ongoing interest in sustainable investing we know that for sure and UBS's view is that a green recovery is coming just kind of what enjoy was alluding to here so in addition to the opportunities what are the risks associated. With that kind of increased exposure to those areas. Well there's always the possibility of overcrowding and trendy stocks right we've seen. What social media can do to the price of a stock there very recently. But I've read a number of studies and we've done our own work it doesn't feel like the spaces over crowded at all and the other thing is investors have different styles growth value growth at a reasonable price. You can build a sustainable portfolio along any style of investing really it's really mainly about how you incorporate that data and how you evaluate the company's prospects on a forward looking basis. So I don't think the
risk of crowding is- is something that people need to worry about so much I do think that the evolution of sustainable investing in these policies and more data transparency. Will uncover the fact that some companies are ready for instance for a climate. Change transition lowering their carbon footprint and some companies won't be and they're likely to face higher cost of capital that's really what the regulators want they want the- cost of capital to be a signal to companies about how they run their business. And so they'll be winners and losers so perhaps one of the resources there are companies and portfolios that we really won't be able to participate or camper does debater won't participate. And they will be on a different valuation metric than those that show promise.
Great add thank you Bruno and Andrew you know as we're wrapping up here where where do you see. Opportunities right now for investors when it comes sustainable investing in you know where should they be thinking about investing right now within the space. Yeah I mean I think I think the biggest opportunity is burning kind of alluded to is actually just making sure the sustainability risks and opportunities are incorporated into the way that they in Boston so. I think that's the
starting point I think- you know some of the specific areas which we touched on on you know our climate change that's that's a key one that- that is front and center for investors minds- certainly we think about it from a long term investment perspective it's one of our long term themes- yes the climate change. Pollution and waste opportunities- on education healthcare and water tend to be among the top ones that our family office clients think about- that investors we speak to broadly think about and that we think are important from a long term perspective. To think about how you corporate those into your portfolio it's both about- making sure that the companies that you invest in- are demonstrating- performance on those metrics but also thinking about on companies and long term opportunities to- provide solutions- you know products and solutions that address those challenges over the longer term so- you know this is some of the interesting areas of thing people always have to think about sustainability opportunities within the context of fundamentals and how we express those- but those are some of the interesting long term. Opportunities that we think about within the context of the diversified. Sustainable portfolio Anthony. To rific and thank you so much Andrew Lee Bruno Bertocci. Andrew of
course had a sustainable impacted. Asset management sustainable equity investors team thanks guys good to see it thanks for joining me. Thanks so much take care. Thank terrific and if you have a question that you'd like answered on a future let's talk about money segment you can send it to UBS studios at UBS dot com and we may answer right here on a future episode as always if you have questions. About your investment portfolio or need financial guidance we always recommend that you speak with your financial advisor on Monday show we've got Rob Romano back joining us to give a preview of the week in the markets and discuss. Some of
the hottest stories of the day will also visit again with the UBS evidence lab and discuss the latest COVID nineteen data ad for millennial Monday we'll talk about the impact of the reddit revolution on volatility and short interest so a lot coming up. For Monday show until then I'm Anthony pastore you have a great weekend everybody and remember to keep an eye on what's trending.
2021-02-06 20:52
