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.

Scope

- 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.

Companies mentioned

TD Securities

Mashreq Bank

TD Securities

Mashreq Bank

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Diversification should form the basis of asset allocation decisions 2

1.2. Key findings 2

1 ...

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Diversification should form the basis of asset allocation decisions 2

1.2. Key findings 2

1.3. Critical success factors 2

2. REGIONAL ASSET ALLOCATION TRENDS 8

2.1. 2018 left market participants disappointed, and 2019 is making them nervous 8

2.1.1. Challenging market conditions will provide new issues to overcome 8

2.1.2. Equity holdings have been on the rise, leaving HNW investors exposed to significant risk 9

2.1.3. Cash and near-cash investments are of little appeal to HNW investors, but this is changing in a number of countries 10

2.1.4. HNW commodity exposure has reached an all-time low 11

2.1.5. Globally the allure of property is fading, but the picture looks more varied on a country level 11

2.2. HNW investors seek a balance between liquidity and direct market exposure 12

2.2.1. ETFs are becoming increasingly popular 12

2.2.2. Equities: Funds and ETFs outweigh direct holdings 13

2.2.3. Bonds: The average HNW fixed-income portfolio is diversified, but direct investments dominate 14

2.2.4. Cash and near-cash products: Local currency deposits prevail as part of HNW investors’ cash investments, but there are exceptions 16

2.2.5. Property: Offering REITs is a must in the HNW space 18

2.2.6. Alternatives: Hedge funds are the favored alternative investment among HNW investors 19

2.2.7. Commodities: Funds and ETFs are the go-to investment, but gold captures significant demand 20

2.3. Local conditions significantly influence HNW investors’ asset allocation preferences 22

2.3.1. HNW investors in North America are significantly exposed to equity risk 23

2.3.2. The European HNW portfolio is somewhat more diversified 24

2.3.3. Property is deeply engrained in Asian culture, and the HNW segment is no exception 25

3. HNW INVESTMENT DRIVERS 29

3.1. Fear that the bull run is coming to an end is forcing HNW investors to review their portfolios 29

3.1.1. Diversification is a major theme across asset classes 29

3.1.2. Uncertainty is the core issue to address in 2019 investment strategies 29

3.2. A focus on diversification will drive demand for alternatives, but a bit of handholding is needed 30

3.2.1. HNW investors are showing increasing interest in alternatives, while demand for fixed-income products is decreasing 30

3.2.2. Alternatives have the potential to add further diversification, but trust and client education are a prerequisite to drive uptake 31

3.2.3. Promoting more exclusive alternatives will drive demand for the asset class in Canada, France, and India 34

3.3. Bulletproofing HNW investors’ portfolios against increased volatility must be a priority 34

3.3.1. Downward volatility has the potential to cause significant customer churn 34

3.3.2. Diversification in the equity space has to become more important 35

3.4. Providing cash management tools is a must as liquidity concerns are driving demand for cash and near-cash products 36

3.4.1. Many investors betting on higher rates will be disappointed 38

3.5. HNW investors are looking towards property and equity investments for a stable income stream 39

3.5.1. The stable income from real estate makes the asset class an appealing investment 39

3.5.2. Weak rental yields in the developed world call for a reshuffle of investors’ property portfolio 40

3.5.3. Wealth managers should put an increased focus on dividend stocks and funds 41

4. APPENDIX 42

4.1. Abbreviations and acronyms 42

4.2. Supplementary data 43

4.3. Definitions 49

4.3.1. HNW 49

4.3.2. Liquid assets 49

4.4. Methodology 49

4.4.1. GlobalData’s 2018 Global Wealth Managers Survey 49

4.4.2. GlobalData’s 2017 Global Wealth Managers Survey 49

4.4.3. Level of agreement calculation 49

4.4.4. Forecast demand/asset allocation calculation 50

4.5. Secondary sources 50

4.6. Further reading 51

List of Tables

List of Tables

Table 1: Singapore: changes to Additional Buyer's Stamp Duty 27

Table 2: HNW investment drivers by country: equities, 2018 43

Table 3 ...

List of Tables

Table 1: Singapore: changes to Additional Buyer's Stamp Duty 27

Table 2: HNW investment drivers by country: equities, 2018 43

Table 3: HNW investment drivers by country: cash and near-cash investments, 2018 44

Table 4: HNW investment drivers by country: bond investments, 2018 45

Table 5: HNW investment drivers by country: property investments, 2018 46

Table 6: HNW investment drivers by country: alternative investments, 2018 47

Table 7: HNW investment drivers by country: property investments, 2018 48

List of Figures

List of Figures

Figure 1: 2018 was a weak year for financial markets 9

Figure 2: The average HNW portfolio is increasingly exposed to equity ...

List of Figures

Figure 1: 2018 was a weak year for financial markets 9

Figure 2: The average HNW portfolio is increasingly exposed to equity risk 10

Figure 3: The IMF’s Global House Price Index has reached pre-crisis levels 12

Figure 4: Actively managed ETFs/ETPs have been rapidly rising in popularity 13

Figure 5: Equity funds dominate the global HNW equity portfolio 14

Figure 6: Following a shift out of corporate debt, the global HNW bond portfolio is well diversified 16

Figure 7: Local currency products are the most common type of cash investment 18

Figure 8: An increasing proportion of HNW wealth is locked up in property 19

Figure 9: Hedge funds dominate the HNW alternative investment portfolio, but demand for ETFs is rising 20

Figure 10: Funds form the largest component of HNW investors’ commodity investments 22

Figure 11: Regional variation is pronounced, with equity, property, and deposits standing out 23

Figure 12: Diversification benefits form the basis of investors’ asset allocation decisions 30

Figure 13: HNW demand for alternatives is forecast to rise the most over the next 12 months 31

Figure 14: The traditional stock-bond correlation diminished in 2018 32

Figure 15: Building trust is paramount to encourage uptake of alternatives 33

Figure 16: Concerns regarding a financial market downturn are relatively low among wealth managers 35

Figure 17: Investors give little consideration to geographic diversification 36

Figure 18: Cash will rise in most markets as the global economic expansion is increasingly questioned 37

Figure 19: The expectation of rising rates for cash and near-cash investments is becoming more important 39

Figure 20: The predictability of returns is driving demand for property and equities 40

Figure 21: Rental income is of particular importance in Europe and North America 41

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