Originally written by Leslie Shaffer at CNBC | November 26, 2013
While many analysts fear that quantitative easing is blowing a bubble in U.S. stocks, UBS is increasing its allocation, citing earnings expectations.
“While there are some concerns, ultimately, long-term investors should only care whether sentiment has pushed valuations beyond reasonable levels,” said Alexander Friedman, the global chief investment officer for UBS wealth management, in a note. “In short, it has not: investors need not fear that we are in the midst of a dangerous bubble in risk assets.”
While share valuations based on price-to-earnings ratios and cyclically adjusted earnings yields have risen to fair to slightly high levels, earnings growth may drive price appreciation, he said. But Friedman added, investors shouldn’t expect a repeat of the more than 15 percent annualized returns seen over the last five years, with annual returns of 7-8 percent more likely. Continue Reading.