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HNW Asset Allocation Trends

HNW Asset Allocation Trends

Summary

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 go into 2016 we expect a reallocation of assets, benefiting equities and alternatives as investors seek to diversify their portfolios and capitalize on rising asset prices.

Synopsis

  • Draws on our proprietary 2014 Global Wealth Managers Survey to present consistent data across more than 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 macroeconomic, demographic, and attitudinal trends, such as risk preferences that are shaping HNW investment behavior.
  • Accompanied by an online interactive dashboard to enable users to select and view the data of their choosing.
Reasons To Buy
  • What are HNW individuals' preferred investment choices now and going into 2016, and how does this vary by country?
  • What is driving HNW asset allocation strategies in more than 20 key markets, including Australia, the UK, and the US?
  • What are the key drivers prompting HNW investors to review their investment strategies going forward?
Key Highlights

The most striking trend in 2014 was a global retreat from bonds, which have been negatively affected by the US Federal Reserve's taper tantrum and the mainstreaming of alternative investments. These constitute an increasingly large share of the typical HNW portfolio, as investors are seeking diversification away from traditional investments.

HNW investors in the US and Europe are significantly exposed to equity risk, while property investments feature strongly in the Middle East and Asia Pacific. Investors in these regions also allocate an above-average proportion of their wealth to cash and near-cash products, in order to balance out the illiquid nature of property.

Interest rate movements will have a significant effect on bond holdings, which will continue to decrease in Europe. The picture looks more varied in developing markets, which will be affected by declining growth in China on the one hand, and the strong appreciation of the US dollar on the other.


  • Executive Summary
    • HNW investment preferences are shaped by a multitude of factors
    • Key findings
    • Critical success factors
  • Regional Asset Allocation Trends
    • The global HNW portfolio is well diversified
      • Equities dominate in the typical HNW portfolio, shortly followed by bonds
      • Alternative investments have become more popular, at the expense of bonds
      • Commodity holdings have yet to take a big hit
    • Detailed analysis shows HNW investors have a strong appetite for local currency products, direct equity, and corporate bonds
      • Direct holdings constitute the bulk of equity investments, but ETPs are growing in popularity
      • Direct corporate bonds are the preferred type of fixed income investment
        • Table 10-year government bond rates, March 25, 2015
      • Local currency products prevail as part of HNW investors' cash investments, but there are exceptions
      • Almost one fifth of property investments are held offshore
      • With the exception of hedge funds in Brazil, no alternative investment product constitutes more than 10% of the average HNW portfolio
      • Gold is the most common type of commodity investment
    • There are significant regional differences when it comes to HNW investors' asset allocation preferences
      • The typical HNW portfolio in the West is heavily skewed towards equities
      • Real estate investments and cash products dominate in the East
        • Table Asia Pacific: year-on-year house price changes (%), Q4 2013 and Q4 2014
      • Commodity holdings can be found across the world, but are particularly pronounced in resource-rich countries
    • With the exception of equity investments, HNW investors tend to prefer direct investments over funds
      • Fund holdings, especially in the Middle East, will grow as markets develop
        • Table Estimated proportion of worldwide mutual fund assets by region, 2013
  • 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 are the top driver for equities as loose monetary conditions persist
      • Dividend income as a driver for equity investments is of particular importance in Australia
    • Bonds are traditionally important for risk-averse HNW individuals, but this is changing
      • Quantitative easing in Europe will have a negative effect on bond holding
      • Risk-aversion and asset diversification are the main drivers for bond investments, but lack of yield deters investors
      • Changes in interest rates will have a strong effect on bond holding
    • 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
      • A desire to maintain liquidity and risk aversion are the top drivers for cash investments
      • Rising consumer confidence will have an adverse effect on deposit holdings in the EU
      • A desire to play the forex market is an important driver for cash holding in Russia and Nigeria
    • Rising property prices are driving investments in real estate
      • Globally HNW investments in real estate are forecast to rise
      • Property price movements and rental yields are the main drivers for HNW investment in real estate
        • Table Equity index movements and gross rental yields in Europe
      • The desire to diversify globally is a key driver for property investment among Russian HNW individuals, but the tumbling ruble is taking its toll
    • Alternative investments are becoming increasingly important for their diversification benefits
      • HNW demand for alternatives is forecast to increase in all but two countries
      • HNW investors invest in alternatives to diversify their portfolios
      • Capital appreciation opportunities draw in investors but expectation management is key
      • Other HNW drivers for alternatives include dissatisfaction with traditional asset classes, perceptions of exclusivity, and current returns
    • Commodities largely act as a diversifier in the average HNW portfolio
      • HNW investors were confident commodity prices would continue to rise
      • Their reputation as an important diversifier has seen commodities become an integral part of the typical HNW portfolio
      • Falling oil prices hit HNW investors in resource-rich countries hard
  • Appendix
    • Abbreviations and acronyms
    • Supplementary data
      • Table HNW investment drivers by country: alternative investments, 2014
      • Table HNW investment drivers by country: bonds, 2014
      • Table HNW investment drivers by country: cash and near-cash products, 2014
      • Table HNW investment drivers by country: commodities, 2014
      • Table HNW Investment drivers by country: equities, 2014
      • Table HNW investment drivers by country: property, 2014
    • Definitions
      • High net worth (HNW)
      • Liquid assets
    • Methodology
      • Verdict Financial's 2014 Global Wealth Managers Survey
      • Verdict Financial's 2013 Global Wealth Managers Survey
    • Bibliography
    • Further reading

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