UBS

UBS AG (NYSE:AG) is planning a mass mailing to many of its brokerage clients alerting them that they have been reclassified as “aggressive” investors, according to a new report from FOX Business Network’s (FBN) Charlie Gasparino. Gasparino reports that this is following a recent change in its market outlet that some people inside the firm say reflects growing bearishness in the bond market particularly over the long term.

Excerpts below.

On UBS going bearish on the bond market:

“UBS AG (NYSE:UBS) is planning a mass mailing to many of its brokerage clients alerting them that they have been reclassified as ‘aggressive’ investors following a recent change in its market outlet that some people inside the firm say reflects growing bearishness in the bond market particularly over the long term, the Fox Business Network has learned. The move by the brokerage firm comes as the stock market as measured by the Dow Jones Industrial Average today hit the 14,000 level—its highest point since the beginning of the financial crisis in late 2007, and as government bond prices have begun to fall.”

 

On the change in UBS’ “strategic asset allocation guidelines”:

“In late January, UBS changed its “strategic asset allocation guidelines,” or the broad parameters  used to classify its xxx brokerage clients depending on their mix of stocks, bonds and other investments in their portfolio, people at the company tell Fox Business. According to brokers inside UBS, new guidelines will reflect a growing belief among the firm’s market strategists that the bull market in bonds has largely run its course, and that those investors who believed they had constructed a ‘conservative’  portfolio by being heavily invested in bonds, could be reclassified as ‘aggressive.’”

 

On the letter being sent out to investors:

“Mike Ryan, the chief investment strategist for UBS, said so-called ‘non consent’ letters will be sent out to investors in the coming weeks alerting them of their changed classification – but he says it has little to do with a firm-wide bias against bonds. Rather UBS is changing ‘its long term view’ reflecting what it views as a ‘volatile market…not just in fixed income.’ He said the new classifications are unrelated to the firm’s shorter term outlook that takes a dim look on the fixed income market particularly government bonds over the next year.’

 

On fears inside the firm the move will lead to “an exodus”:

“Still the move is controversial inside UBS; some brokers worry that many of their best clients will see the changes jarring, and possibly leading to an exodus out to other firms. Others say it’s the right move since the Federal Reserve at some point will have to raise short-term interest rates (currently close to zero percent), and end its quantitative easing program, which involves the Feds purchase of government bonds, which helps depress long term interest rates and prop up bond prices (yields move in the opposite direction from price)…Some brokers inside UBS are hoping that the firm’s management reconsider the new models, which they believe are too draconian. If not investors are expected to received notices by March.”

The full report can be found here.


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