Recent trends indicate that investors who replicate government investment strategies have enjoyed significant returns. The chief investment officer at UBS Global Wealth Management believes this trend will continue.
government funding Investments Fuel Market Gains
- The U.S. government recently took a 10% equity stake in Trilogy Metals, causing its shares to surge over 400% year-to-date and hitting record highs. This move is part of a broader strategy to secure critical minerals domestically and reduce reliance on foreign suppliers like China.[1][2]
- Similarly, MP Materials, which produces rare earth materials vital for technology and defense, saw its shares rise by more than 350% this year after government investment.[3][4]
- These investments reflect a growing government focus on strengthening supply chains for strategic resources. Companies involved in rare earths, lithium, and other critical materials are gaining significant investor attention and federal support.[5]
ETFs Reflect Strong Performance in Government-Backed Sectors
- The PHLX Semiconductor Index ETF (SOX) has risen over 100% since the enactment of the U.S. Chips and Science Act in August 2022, signaling strong government-driven semiconductor growth.[3]
- The Global X Defense Tech ETF (SHLD) surged approximately 200% since its inception in September 2023, buoyed by increased defense spending, particularly amid European support for Ukraine.[3]
- Infrastructure-focused Global X US Infrastructure Development ETF (PAVE) doubled in value over three years, underpinned by bipartisan infrastructure funding initiatives and the Infrastructure Investment and Jobs Act.[6][3]
UBS’s Focus Areas in Government-Led Investing
UBS Wealth Management highlights three core sectors for investments tied to government spending and policy:
- Artificial Intelligence (AI): Despite recent market volatility, the AI sector remains a key government priority with expected continued capital expenditures by leading tech companies projected to rise to $280 billion by 2025.[7]
- Power and Energy: Energy independence and power capacity expansion are vital, given rising energy prices and geopolitical concerns. Government policies continue to support energy infrastructure and transition efforts.[8][3]
- Resources and Healthcare: With aging populations and national security concerns, healthcare and critical raw materials (like rare earths) are long-term themes supported by government programs and budgets.[8][3]
Investing Guidance and Market Outlook from UBS
- Mark Haefele, CIO at UBS Global Wealth Management, stresses that while government-backed investments offer durable trends, investors should expect volatility and not rely solely on picking specific stocks ahead of government deals.[3]
- For most investors, focusing on broad, government-driven thematic sectors rather than individual equities is prudent.
- UBS also recommends diversification beyond U.S. dollars for global investors, citing increased gold interest as a hedge against currency risk.[3]
- UBS Global Wealth Management is overweight U.S. equities due to resilient growth and lowered Federal Reserve interest rates, favoring sectors like tech, utilities, and financials with ties to government spending.[9]
Tracking government funding and aligning investments with major government spending initiatives has proven to be a successful strategy. UBS Wealth Management’s emphasis on AI, power, resources, and healthcare leverages durable policy-driven trends, backed by recent market performances of companies like Trilogy Metals and MP Materials, as well as sector ETFs focused on semiconductors, defense, and infrastructure.
