HNW Asset Allocation Trends 2019
Chasing capital appreciation opportunities, HNW investors have been eager to increase their equity holdings over the past few years. While we do not expect a fall in demand for risk assets, HNW investors are looking for new means to diversify their portfolios. Overall we expect a notable increase in alternatives at the expense of fixed-income products over the coming year. However, there will be significant regional differences. Over the next 12 months we expect to see a reallocation of HNW assets as investors increasingly seek to diversify their holdings. This means wealth managers will do well to discuss the various methods that will help HNW investors diversify their portfolios. Diversification across asset classes remains the go-to approach, with too little attention given to geographical and intra-asset class diversification.
Drawing on our 2018 Global Wealth Managers Survey, this report analyzes HNW asset allocation strategies in 19 key markets. In particular, it examines the drivers behind investment choices now and over the next 12 months.
- HNW investors in Asia Pacific are significantly more risk averse than their global peers, with an average equity allocation of 32.8%. This compares to 42.3% in Europe and 52.8% in North America.
- 64.3% of wealth managers expect demand for alternatives to rise, while a mere 13.0% expect a drop in demand. The asset class is becoming more popular as a diversifier and as the allure of bonds fades.
- Liquidity concerns are also driving demand for cash and near-cash products, with 61% of wealth managers expecting an increase, while demand for bonds is forecast to drop.
- Amid growing uncertainty, the predictability of returns is driving demand for a stable rental and dividend income in the form of property and equities, calling for a focus on quality assets.
Reasons to buy
- Understand investment trends and adjust your service proposition based on a detailed understanding of HNW investors investment preferences.
- Understand how to best promote investment products by learning what is driving investment choices.
- Learn how and why investment preferences will change over the next 12 months.
- Understand the effect increased volatility can have on investor behavior and how to minimize the risk of customers changing providers.
- Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investment drivers.
Table of Contents
1. EXECUTIVE SUMMARY
1.1. Diversification should form the basis of asset allocation decisions
1.2. Key findings
1.3. Critical success factors
2. REGIONAL ASSET ALLOCATION TRENDS
2.1. 2018 left market participants disappointed, and 2019 is making them nervous
2.1.1. Challenging market conditions will provide new issues to overcome
2.1.2. Equity holdings have been on the rise, leaving HNW investors exposed to significant risk
2.1.3. Cash and near-cash investments are of little appeal to HNW investors, but this is changing in a number of countries
2.1.4. HNW commodity exposure has reached an all-time low
2.1.5. Globally the allure of property is fading, but the picture looks more varied on a country level
2.2. HNW investors seek a balance between liquidity and direct market exposure
2.2.1. ETFs are becoming increasingly popular
2.2.2. Equities: Funds and ETFs outweigh direct holdings
2.2.3. Bonds: The average HNW fixed-income portfolio is diversified, but direct investments dominate
2.2.4. Cash and near-cash products: Local currency deposits prevail as part of HNW investors cash investments, but there are exceptions
2.2.5. Property: Offering REITs is a must in the HNW space
2.2.6. Alternatives: Hedge funds are the favored alternative investment among HNW investors
2.2.7. Commodities: Funds and ETFs are the go-to investment, but gold captures significant demand
2.3. Local conditions significantly influence HNW investors asset allocation preferences
2.3.1. HNW investors in North America are significantly exposed to equity risk
2.3.2. The European HNW portfolio is somewhat more diversified
2.3.3. Property is deeply engrained in Asian culture, and the HNW segment is no exception
3. HNW INVESTMENT DRIVERS
3.1. Fear that the bull run is coming to an end is forcing HNW investors to review their portfolios
3.1.1. Diversification is a major theme across asset classes
3.1.2. Uncertainty is the core issue to address in 2019 investment strategies
3.2. A focus on diversification will drive demand for alternatives, but a bit of handholding is needed
3.2.1. HNW investors are showing increasing interest in alternatives, while demand for fixed-income products is decreasing
3.2.2. Alternatives have the potential to add further diversification, but trust and client education are a prerequisite to drive uptake
3.2.3. Promoting more exclusive alternatives will drive demand for the asset class in Canada, France, and India
3.3. Bulletproofing HNW investors portfolios against increased volatility must be a priority
3.3.1. Downward volatility has the potential to cause significant customer churn
3.3.2. Diversification in the equity space has to become more important
3.4. Providing cash management tools is a must as liquidity concerns are driving demand for cash and near-cash products
3.4.1. Many investors betting on higher rates will be disappointed
3.5. HNW investors are looking towards property and equity investments for a stable income stream
3.5.1. The stable income from real estate makes the asset class an appealing investment
3.5.2. Weak rental yields in the developed world call for a reshuffle of investors property portfolio
3.5.3. Wealth managers should put an increased focus on dividend stocks and funds
4.1. Abbreviations and acronyms
4.2. Supplementary data
4.3.2. Liquid assets
4.4.1. GlobalDatas 2018 Global Wealth Managers Survey
4.4.2. GlobalDatas 2017 Global Wealth Managers Survey
4.4.3. Level of agreement calculation
4.4.4. Forecast demand/asset allocation calculation
4.5. Secondary sources
4.6. Further reading
List of Tables
Table 1: Singapore: changes to Additional Buyer's Stamp Duty
Table 2: HNW investment drivers by country: equities, 2018
Table 3: HNW investment drivers by country: cash and near-cash investments, 2018
Table 4: HNW investment drivers by country: bond investments, 2018
Table 5: HNW investment drivers by country: property investments, 2018
Table 6: HNW investment drivers by country: alternative investments, 2018
Table 7: HNW investment drivers by country: property investments, 2018
List of Figures
Figure 1: 2018 was a weak year for financial markets
Figure 2: The average HNW portfolio is increasingly exposed to equity risk
Figure 3: The IMFs Global House Price Index has reached pre-crisis levels
Figure 4: Actively managed ETFs/ETPs have been rapidly rising in popularity
Figure 5: Equity funds dominate the global HNW equity portfolio
Figure 6: Following a shift out of corporate debt, the global HNW bond portfolio is well diversified
Figure 7: Local currency products are the most common type of cash investment
Figure 8: An increasing proportion of HNW wealth is locked up in property
Figure 9: Hedge funds dominate the HNW alternative investment portfolio, but demand for ETFs is rising
Figure 10: Funds form the largest component of HNW investors commodity investments
Figure 11: Regional variation is pronounced, with equity, property, and deposits standing out
Figure 12: Diversification benefits form the basis of investors asset allocation decisions
Figure 13: HNW demand for alternatives is forecast to rise the most over the next 12 months
Figure 14: The traditional stock-bond correlation diminished in 2018
Figure 15: Building trust is paramount to encourage uptake of alternatives
Figure 16: Concerns regarding a financial market downturn are relatively low among wealth managers
Figure 17: Investors give little consideration to geographic diversification
Figure 18: Cash will rise in most markets as the global economic expansion is increasingly questioned
Figure 19: The expectation of rising rates for cash and near-cash investments is becoming more important
Figure 20: The predictability of returns is driving demand for property and equities
Figure 21: Rental income is of particular importance in Europe and North America
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