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Analyst Interview: HNW Asset Allocation Trends 2017

Senior Wealth Management Analyst Heike van den Hoevel has been working on our “HNW Asset Allocation Trends 2017” report. Here, we ask her about the key findings of her research, new and emerging trends, and the challenges facing the industry over the coming years.

What has been the most striking change since you last researched this topic for the March 2016 edition of the report?

Volatility was definitely the dominant theme in 2016, and this is not expected to change as we move further into 2017. However, we have picked up on a somewhat contradicting trend. With rates at record lows, investors have struggled to achieve decent returns for quite some time now. As a result HNW individuals have started to explore riskier corners of financial markets. As market conditions are becoming increasingly volatile on the back of political uncertainties – Trump’s policy agenda, elections in Europe, and ongoing Brexit negotiations to name just a few – investors are looking for cheap buying opportunities. Yet at the same time, as it is becoming increasingly impossible to predict financial markets, paradoxically investors are becoming risk-averse. And I believe there is an opportunity to be had as investors are becoming more inclined to seek financial advice. However, I think the main beneficiaries of this trend will be the big names – the likes of Credit Suisse and UBS – as investors are looking for stability.

This is good news for wealth managers. Where else do you see opportunities this year?

This is somewhat connected, but I see a significant opportunity in Asia. Our research shows that there is a good chunk of Asian HNW wealth parked in cash products, as investors want to be ready for future investment opportunities. The challenge, however, will be to unlock this opportunity as Asian investors tend to be more risk-averse than their global peers. And this is also reflected in the typical portfolio, which is rather conservative. So I believe wealth managers’ best bet will be on old fashioned blue-chips and dividend funds, which help protect against inflation and are more suited to capital preservation strategies. Eventually this will help to boost wealth managers’ fee income, and once trust has been built investors will be less reluctant to explore new investment ideas.

What do you consider to be the main challenges for wealth managers given the current asset allocation trends?

With the exception of Asia, the typical HNW portfolio is becoming increasingly exposed to risk assets as investors are shying away from low-yielding deposits and bonds. This trend is not new. We have been surveying the global HNW market for more than 10 years, and our data shows that the proportion of HNW wealth invested in equities is now seven percentage points higher when compared to the five-year average. Generally speaking this trend has been welcomed by wealth managers, as higher-risk products usually generate higher fee income. However, there are risks. While equity markets have been characterized by increased volatility in the recent past, we’ve had a good run over the past eight years. I am not saying that there will be another crash like the one we saw in 2008 anytime soon, but wealth managers need to be aware of challenges, and not ignore them as something that is unlikely to happen. This is not the time to put all of one’s eggs in one basket. As investors are increasingly looking for cheap buying opportunities, providers should discuss the trade-off between risk and return and any penny or growth stocks should be accompanied by a healthy range of blue-chips.

By Heike van den Hoevel, Senior Wealth Management Analyst

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