A month after turning cautious on global stock investing, the investment committee of Credit Suisse Group's U.S. private bank has reversed course.
"Plentiful liquidity, attractive valuations and low inflation make equities among our best options in an asset allocation context," a team led by Barbara Reinhard, the unit's chief investment strategist, wrote in a note to clients.
The strategists were alarmed in early February about political stalemates in Spain and Italy, the sequestration congressional crisis in the U.S., bailout talks in Cyprus and a seemingly overenthusiastic rush into equity mutual funds. The trends led them to put a tactical alert on stock investing over the next one to six months.
Last week, however, they decided that issues in Europe were country-specific rather than systemic, that central banks in the U.S. and Europe will continue their stimulative monetary policies and that investor optimism in the U.S. has cooled enough to guard against hyped-up stock prices that will quickly fall, according to the report.
Though the S&P 500 index is quickly approaching the all-time high it set in October 2007, investors should take the plunge by reentering the stock market in phases, the strategist wrote.
Caution about investing in stocks after two long bear markets in the past 10 years is understandable and "poignant," they wrote, given that investors are sitting on "high cash holdings in spite of several years of decent equity market returns."
The Credit Suisse strategists recommend a phase-in strategy for getting back into the stock market. Rather than plunging in with all their cash, investors should use one of three strategies: investing 25 percent in stock every three months for the next year; investing one-third in stock every six months; or investing 50 percent initially followed by the remainder in two 25 percent allocations over the following six months.
"While we know that, objectively, investing all-at-once produces the best return over the long run, a phase-in strategy can help investors who are entering equities neutralize some of the emotion that may arise in the event of an interim pull-back," the private banking strategists wrote.
Analyzing 12-month returns on the S&P 500 index since 1926, the strategists found that the all-at-once strategy yielded a return of 11.0 percent compared to 7.4 percent to 9.7 percent for the various phase-in strategies.
Credit Suisse's private banking group in the U.S., Canada and Latin America, which includes about 600 relationship managers selling investments and financial planning services to wealthy individuals, reorganized last week.
Philip Vasan, who ran the bank's fast-growing prime brokerage business for hedge funds, is replacing Anthony DeChellis as head of the group.
Vasan will assume his new post in April and will report to Rob Shafir, global cohead of private banking and wealth management at the Swiss bank.
(Reporting by Jed Horowitz; Editing by Phil Berlowitz and Andrew Hay)