There is no single driver influencing HNW investment preferences. On the contrary, investment choices are determined by an interplay of factors such as risk preference, economic forces, and investor attitudes. As we enter 2016 we expect a reallocation of assets, benefiting alternative investment holdings globally. At the same time, HNW investors are looking for cheap buying opportunities in the equity space.
The most striking trend is the surge in alternatives, which constitute an increasingly large share of the typical portfolio as investors seek diversification from traditional investments. We are also seeing rising demand for exchange-traded funds, which thanks to the diversification they provide and their low costs are rapidly growing in popularity.
Drawn in by capital appreciation opportunities, investors are forecast to channel more wealth into equities. This trend will be particularly pronounced in Europe, where investors are hoping that loose monetary conditions will finally stimulate equity markets.
In the fixed income space, HNW investors are moving out of high-yield bonds, with investor concern mounting as volatility in the junk bond market persists. In many global markets wealth managers will have a tough time promoting bond holdings in general. Their best bet will be bond funds thanks to the diversification benefits they provide.
Verdict Financials HNW Asset Allocation Trends draws on our 2015 Global Wealth Managers Survey to analyze HNW asset allocation strategies in 20 key markets. In particular, it examines the drivers behind investment choices now and over the next 12 months. Draws on our proprietary 2015 Global Wealth Managers Survey to present consistent data across 20 markets.
Analyze HNW asset allocation strategies in 20 key HNW markets including Australia, the UK, and the US.
Understand the drivers that determine HNW investment preferences.
Interpret the macroeconomic, demographic, and attitudinal trends that are shaping HNW investment behavior.
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HNW investment preferences are shaped by a multitude of factors
Critical success factors
REGIONAL ASSET ALLOCATION TRENDS
The global HNW portfolio is well diversified
Equities dominate the typical HNW portfolio
Alternative investments have become more popular, at the expense of bonds
Despite recent downturns, commodities continue to find a place in the typical HNW portfolio
Detailed analysis shows HNW investors have strong appetite for direct equity, local currency products, equity funds, and direct property
Direct holdings constitute the bulk of equity investments, but ETPs are growing in popularity
Bond funds are the preferred type of fixed income investment
Local currency products prevail as part of HNW investors cash investments, but there are exceptions
High direct property holdings limit wealth managers fee-earning potential
Hedge funds have emerged as the preferred alternative investment among HNW investors
Commodity ETPs have overtaken mutual funds in popularity
There are significant regional differences when it comes to HNW investors asset allocation preferences
The typical HNW portfolio in the West and the Middle East and Africa is heavily skewed towards equities
Real estate features prominently in the typical HNW portfolio in Asia Pacific and the Middle East and Africa
The drop in commodity prices hit investors in resource-rich countries hard
Demand for alternatives is particularly strong in North America
HNW INVESTMENT DRIVERS
Equity holdings are driven by the capital appreciation opportunities they provide
Positive stock market conditions are driving equity investments
Capital appreciation opportunities will continue to drive HNW demand, but not everywhere
Dividend income as a driver of equity investments is of particular importance in a number of countries
Bonds are traditionally important to risk-averse HNW individuals
Quantitative easing in Europe will continue to have a negative effect on bond holdings
Risk aversion and asset diversification are the main drivers of bond investments
Current returns are driving bond holdings in emerging markets, and wealth managers will do well to educate clients about the risks involved
Cash and near-cash products are favored as a means of maintaining liquidity
HNW investors are forecast to reduce their cash holdings, albeit only slightly
Risk aversion and a desire to maintain liquidity are the top two drivers for cash investments
Rising consumer confidence will have an adverse effect on deposit holdings in Europe
Education is key to lure clients away from deposits in certain markets
Real estate investments are driven by HNW investors desire to be able to rely on rental income
Global HNW investments in real estate are forecast to rise
Rental yields and property price movements are the main drivers for HNW investments in real estate
Economic distress is driving demand for real estate in Russia
Alternative investments are becoming increasingly important for their diversification benefits
HNW demand for alternatives is forecast to increase in all but one country
Future capital appreciation is the primary driver of alternatives demand
HNW individuals also invest in alternatives to diversify their portfolio
Going forward, we expect dissatisfaction with traditional asset classes as a driver for alternatives to become more important
Other HNW drivers for alternatives include the perception of exclusivity and current returns
Commodities largely act as a diversifier in the average HNW portfolio
Demand for commodities is set to rise, but only for selected products
Their reputation as an important diversifier has seen commodities become an integral part of the typical HNW portfolio
HNW investors are also betting on capital appreciation opportunities in the commodity space
Abbreviations and acronyms
Verdict Financials 2015 Global Wealth Managers Survey
Verdict Financials 2014 Global Wealth Managers Survey
Verdict Financials 2013 Global Wealth Managers Survey
About Verdict Financial
Figure 1: Alternative investments have become increasingly popular
Figure 2: 2015 was a rough year for commodities
Figure 3: ETPs are becoming increasingly popular among HNW investors
Figure 4: Bond funds form the largest component of HNW investors fixed income investments
Figure 5: Local currency products are the most common type of cash investment
Figure 6: A significant proportion of HNW wealth is locked up in property
Figure 7: Hedge funds dominate in HNW investors alternatives portfolios
Figure 8: ETPs form the largest component of HNW investors commodity investments
Figure 9: Global markets have been subject to significant volatility
Figure 10: Investors attitude towards risk differs significantly across the globe
Figure 11: The majority of wealth managers expect HNW equity demand to rise
Figure 12: Capital appreciation opportunities are motivating HNW investors to channel their wealth into equities
Figure 13: Global demand for bond holdings will be varied
Figure 14: Risk aversion is driving bond investments in the HNW space
Figure 15: Direct bond holdings dominate in emerging markets
Figure 16: Global HNW cash holdings will increase over the next 12 months
Figure 17: Risk aversion is the top driver for cash investments
Figure 18: Rising consumer confidence will result in deposit holdings declining in the Europe
Figure 19: HNW property investments are largely forecast to rise over the next 12 months
Figure 20: Rental yields constitute the number one driver of real estate investments
Figure 21: HNW demand for alternatives in Australia is forecast to skyrocket
Figure 22: Capital appreciation is the number one driver of alternative investments
Figure 23: Commodity holdings are set to increase in the HNW space
Figure 24: The benefits of asset diversification are driving commodity investments
Figure 25: Amid global uncertainty, the price for precious metals skyrocketed in 2016
Table 1: 10-year government bond rates
Table 2: Real house price growth, annual percentage change (selected countries)
Table 3: Equity index movements and gross rental yields in Europe
Table 4: Real house price growth, annual percentage change (selected countries)
Table 5: HNW investment drivers by country: equities, 2015
Table 6: HNW investment drivers by country: bonds, 2015
Table 7: HNW investment drivers by country: cash and near-cash products, 2015
Table 8: HNW investment drivers by country: property, 2015
Table 9: HNW investment drivers by country: alternatives, 2015
Table 10: HNW investment drivers by country: commodities, 2015
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