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With markets high ‘it’s time to diversify for the next leg’: analyst on 2021 market outlook

Emily Rubin UBS Senior Vice President of Wealth Management joins Yahoo Finance Live to break down how markets could fare heading into 2021.

Video Transcript

ZACK GUZMAN: I Want to bring on our first market guest today. That's Emily Rubin, UBS Senior Vice President Wealth Management, joins us now. Emily, appreciate you taking the time here.

We've been talking for a few days here about this rotation away from some of those growth names into some more cyclical names, like a Boeing perhaps, that is more levered to the reopening here of travel and the economy in general. But what's your take right now on how investors are maybe starting that rotation now and where it continues from here?

EMILY RUBIN: Yeah, I mean, when we look forward to the year 2021, we definitely think it's going to be a year of renewal. The world is steadily returning to normal. And with markets high, we do think it's time to diversify for the next leg, and we do expect some of these 2020 laggards to have the biggest upside potential, so whether that be consumer cyclicals or mid-cap stocks, both of which should do better on a reopening.

So we're trying to-- you know, when we're talking to our clients right now, we're not only looking towards-- you know, everyone wants to get past 2020. There's a lot of 2020 year-end planning. But from a market perspective, we are now able to look forward and allocate them for 2021 and even beyond for longer-term trends.

AKIKO FUJITA: Emily, you know, Anjalee earlier talking about the news out of Pfizer today with a 95% efficacy. Now you've got two vaccines between Pfizer and Moderna. Have the news-- has the news out of these drug makers, has that changed your base case for you at all?

EMILY RUBIN: Well, you know, the market has gone up a lot on the vaccine news, and we do think that these returns are justified. I mean, a lot of these uncertainties are through. We now are past the election, and the vaccine news at least gives us somewhat of a timeline. We think there will be more volatility as that-- you know, we talk-- we learn more about how long it's going to take and actually getting it out to the people.

But that combined with corporate earnings, which have come out much stronger than expected, and an accommodative fiscal policy and monetary policy, we think the case for equities right now is clear over cash.

ZACK GUZMAN: Yeah, you kind of mentioned that investment horizon there. Obviously, you know, we can talk about stocks being beaten down this year. But when you look at the investment horizon maybe a little bit longer here, maybe back up and look at about 10 years or historical long-run averages, you're talking about how some of those cyclical names match up to some of the growth names that we've been watching over the years. What does that look like to you when you back up and maybe put 2020 in context?

EMILY RUBIN: Well, interestingly, I mean, all of our clients are only talking about large-cap growth and some of those big tech names that have done well specifically. But if you look back over the long term, value has outperformed growth over the very long term. But these last 10 years, growth has outperformed value by over 6% a year.

And just looking back the last two years cumulatively, growth has outperformed value by 50%. So a lot of our clients are getting frustrated with this and wondering if value investing is a thing of the past. But when we look at value investing, it does include a lot of these sectors that should do better on a reopening trade, and outperformance of growth versus value is historical and at historical levels. If you're not going to invest in value now, I don't know when you are.

AKIKO FUJITA: Emily, one of the things that you've highlighted are sustainable investments there. We're looking at more than a trillion dollars invested or dedicated to SI funds. How much of this do you think-- or how much of Joe Biden's policies, given that he has made climate really one of the central points of his administration, how big of a catalyst do you think that's likely to be for ESG investing as a whole?

EMILY RUBIN: I think sustainable investing has a lot of momentum and is definitely going to be part of the next 10 years and become more and more important. It's become much more relevant to our clients as a result of this pandemic, and they have a reduced tolerance for unsustainable practices.

Our clients already may, you know, give their time to their community and invest in charities, but they want their investments now to reflect their personal values. And with, as you said, $1 trillion already invested in sustainable funds and more to come, the momentum from both investors and governments, like Joe Biden's green agenda and others that are committing to a green recovery, we think they'll continue and supported by a growing track record of investment options.

At UBS, we've actually made sustainable investing our preferred solution for clients who are investing globally. You no longer have to sacrifice returns to invest for good and have an impact.

ZACK GUZMAN: Yeah, we know that millennials in particular do enjoy, I guess, focusing in on ESG efforts here. But the other question I get from newer investors watching this all play out in 2020 is the fact that we're already back at record highs on the Dow and the S&P. So some people might say, oh, I missed my opportunity to invest there. I was looking over your notes, and you kind of highlighted the fact that just because you're trading at new highs doesn't necessarily mean you missed the top. Talk to me about what history might say as to why maybe new investors looking to put money to work haven't missed the boat yet.

EMILY RUBIN: Yeah, I mean, as you said, new highs are historically not an obstacle to further gains. If you look back at monthly data since 1960, the average one-year return of the S&P after reaching new highs was 11.7%, which is actually slightly higher than 11.3% from years where the S&P was not at a high. So there is-- you know, just because the market's at near-- at new highs doesn't mean that there can't be more upside potential.

In fact, if we look back through this pandemic, savings accounts have increased by upwards of $2 trillion since March, and that represents almost 10% of GDP. With all of that increased savings, there is tremendous potential for a huge boost in consumer spending once the reopening, you know, continues.

ZACK GUZMAN: Yeah, right now there's not a lot of options out there if you're looking to travel or perhaps go on a cruise either. A lot of money there sitting on the sidelines. But Emily Rubin, UBS senior vice president of wealth management, appreciating you taking the time to chat.

EMILY RUBIN: Thank you very much.