2021 was a good year for equities, and by extension, for HNW investors. While HNW allocations to the asset class have decreased notably since 2018, they increased again over the course of the year and are markedly higher than among other investors segments.
Uncertainty is a key investment theme as investors are scrambling to adjust their portfolios to changing investment conditions as we enter a new economic cycle. Higher inflation amid slower growth has brought an end to the availability of cheap money and inflated asset prices. Returns are harder to come by and investors are exploring new corners of financial markets, while at the same time building up cash reserves to ensure liquidity. Over the coming year, alternatives will be the clear winners, but wealth managers will also have to contend with higher cash and near-cash allocations.
High Net Worth (HNW) asset allocation market research report analyzes HNW asset allocation strategies in 19 key markets, with a particular focus on the drivers behind investment choices now and over the next 12 months.
What are the key trends in the HNW asset allocation market?
Some of the key trends in the HNW asset allocation market are as follows-
ETFs are expected to overtake HNW mutual fund holdings in the near term
A desire to achieve further diversification has resulted in greater uptake of indirect holdings, especially in the equity space. In 2018, HNW investors allocated a significant share of their equity portfolio to funds; by 2021 this proportion had risen. While diversification represents a key driver, the reasons behind this trend are multi-faceted.
Demand for thematic ETFs has skyrocketed but advisors need to ensure client portfolios remain diversified
The thematic fund sector has exploded in recent years. According to Morningstar (as seen in Wealth Professionals), thematic fund industry AUM more than tripled between 2018 and 2021, with global thematic fund assets reaching $806 billion at the end of 2021.
In particular, cybersecurity, robotics, blockchain, artificial intelligence, and other tech themes are in high demand. While the premise of providing exposure to long-term structural trends is a sensible one, many tech companies have been trading at inflated values. The transition from growth to value stock as markets respond to tighter monetary conditions has seen prices dive. Wealth managers need to ensure they are not just chasing fads but remain well diversified across industries.
Shifts in global monetary policy will impact property allocations
Transitioning investors away from direct holdings to fund products will be key in these markets. Not only will this benefit wealth managers’ fee income, but tighter monetary conditions put a halt to strong property price growth – especially in the residential sector. This makes diversification even more important. The returns different types of real estate yield vary strongly over an economic cycle, offering a strong incentive to promote fund products, which provide exposure to different types of real estate. For example, residential property tends to be the least cyclical, followed by office buildings.
ESG is infiltrating all parts of wealth management
Growing awareness of social responsibility and sustainability have driven demand for ESG investments across all affluent bands, including HNW investors, with approximately half of wealth managers reporting very strong or quite strong HNW demand. Yet the financial services industry remains a laggard.
What are the key asset allocation preferences in the HNW asset allocation market?
The key asset allocation preferences in the HNW asset allocation market are alternatives, commodities, property, cash and near cash, bonds, and equities. HNW equity allocations trended up again, reflecting a rebound in the market.
HNW asset allocation market, by asset allocation preferences
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Market report overview
|Key asset allocation preferences||Commodities, Property, Cash And Near Cash, Bonds, and Equities|
- Demand in the equity space is shifting towards defensive stocks as investors are abandoning growth stocks due to mounting inflationary concerns.
- While HNW bond allocations have fallen notably, there has been an internal reshuffle within the average HNW fixed-income portfolio. This has benefitted high-yield bonds, which now constitute 3.8% of HNW bond holdings.
Reasons to Buy
- Learn how inflationary concerns and resulting market upheaval are affecting investor behavior in the HNW space.
- Discover investment trends as we enter a new economic cycle and adjust your service proposition based on a detailed understanding of HNW investors’ investment preferences.
- Identify 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.
- Give your marketing strategies the edge required to capture new clients using insights from our data on HNW investment drivers.
Table of Contents
Table of Contents
1. Executive Summary
1.1 Market overview
1.2 Key findings
1.3 Critical success factors
2.1 Risk assets were the clear winners in 2021, attracting strong HNW inflows
3. Detailed Asset Allocation Preferences
3.1 Demand is increasing for safe-haven currencies
3.2 Market volatility is driving demand for fund products
3.3 Greater accessibility is driving demand for direct alternatives
3.4 ESG is infiltrating all parts of wealth management
3.5 Credit risk has paid off, but higher allocations pose a risk
4. HNW Investment Drivers and Forecast
4.1 Uncertainty is the core issue to address in 2022 investment strategies
4.2 Alternatives will be the clear winner as investors are looking for uncorrelated returns
4.3 Providing cash management tools is a must as liquidity concerns drive demand for cash and near-cash products
4.4 Inflation is a key investment theme in 2022
4.5 Steep price increases in the commodity space are luring in investors
4.6 A more liquid property portfolio will allow investors to abandon real estate holdings more easily
5.1 Supplementary data
5.2 Abbreviations and acronyms
5.5 Secondary sources
5.6 Further reading
List of Tables
List of Tables
Table 1: Investors are chasing returns in the high-yield fixed-income market
Table 2: HNW investment drivers by country and region: Equities, 2021
Table 3: HNW investment drivers by country and region: Cash and near-cash investments, 2021
Table 4: HNW investment drivers by country and region: Bonds, 2021
Table 5: HNW investment drivers by country and region: Property, 2021
Table 6: HNW investment drivers by country and region: Commodities, 2021
Table 7: HNW investment drivers by country and region: Alternatives, 2021
List of Figures
List of Figures
Figure 1: HNW equity allocations trended up again, reflecting a rebound in the market
Figure 2: Offering foreign currency products is becoming more important
Figure 3: Demand for ETFs is rising rapidly
Figure 4: Direct property holdings have been on the decline
Figure 5: Masterworks democratizes art investments through securitization
Figure 6: Allocations to art and collectables have almost tripled since 2017
Figure 7: ESG has become mainstream
Figure 8: Junk bond allocations have risen steeply in recent years as HNW investors have sought yield
Figure 9: Retail investment holdings growth is forecast to slow notably
Figure 10: Providing investors with access to alternatives is mandatory in 2022
Figure 11: Canadian investors have loaded up on alternatives but most HNWs will seek more exposure in 2022
Figure 12: A lack of returns in other parts of financial markets is driving demand for alternatives
Figure 13: Birchal provides retail investors with private market investment opportunities
Figure 14: HNW demand for hedge funds started to pick up in 2021
Figure 15: A perception of exclusivity is a critical investment driver in North America
Figure 16: HNW demand for cash and near-cash products is forecast to rise in all survey countries
Figure 17: Global inflation is forecast to reach 5.8% in 2022
Figure 18: Inflation is a major concern for equity investors
Figure 19: Commodity price growth is driving investments in the HNW space
Figure 20: Emirati and Canadian HNW individuals are among the keenest commodity investors
Figure 21: Tighter monetary conditions are dampening HNW demand for property