HNW Asset Allocation Trends, Strategies, Drivers and Forecast, 2023 Update

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HNW Asset Allocation Market Report Overview

HNW investors have moved away from risk assets to safeguard their fortunes. HNW equity allocations reduced risk appetite following a share price dive at the beginning of 2022 and heightened volatility thanks to various macroeconomic & political forces has seen investors move away from equities. This trend continued throughout 2022. However, the ongoing Russia/Ukraine conflict and rising inflationary pressures have forced central banks across the world to tighten monetary conditions, equity positions were reconsidered. HNW investors’ equity portfolios have been trimmed by the decline of stock markets around the world as well as a distinct loss of appetite to reinvest into an asset class facing such substantial and intractable headwinds.

The HNW asset allocation market research report analyzes HNW asset allocation strategies across key global markets. It examines the drivers behind investment choices both now and over the next 12 months.

Investment Allocations Savings Accounts, Current Accounts, Equity, Bonds, ETFs, and Mutual Funds

HNW Asset Allocation Market Segmentation by Investment Allocations

The key investment allocations in HNW asset allocation market are current accounts, savings accounts, equity, bonds, ETFs, and mutual funds. In 2022, the savings account segment accounted for the largest HNW asset allocation market share. From the mass market to mass affluent individuals, a reduction in deposit holdings has occurred in response to the current climate. Rather than having their cash savings lose value in a bank, even the less affluent class have shown an increase in risk apetitie than before.

HNW Asset Allocation Market Analysis by Investment Allocations, 2022 (%)

HNW Asset Allocation Market Analysis by Investment Allocations, 2022 (%)

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HNW Asset Allocation Market Trends

  • HNW advisors’ stock-picking expertise is highly sought after. Allocations towards ETFs are on the rise, largely driven by an increased desire for cost-effective diversification and a lack of expertise.
  • Commodities – which constitute 13.5% of the average HNW portfolio – enjoyed a wild ride in 2022 amid the Russia/Ukraine conflict and ongoing (albeit less pronounced) supply chain bottlenecks caused by COVID-19. While outperforming equity markets, performance varied significantly across investments.
  • Local currency deposits typically form the largest allocation in investors’ cash and near-cash portfolio, combining liquidity with zero risk. Wealth managers must contend with higher cash and near-cash allocations.
  • Demand for alternative investments has been increasing steady over the past few years. Technological advances are making alternatives more accessible, while investors across all asset bands are exploring new means of diversification. Equity markets across the globe entered bear market territory in 2022, and investors are looking for returns in new areas of the investment universe. This means alternative investments – which already constitute an integral part of the global HNW portfolio – are set to become even more important.
  • Providing access to private markets is becoming increasingly important in the current environment as public market returns are harder to come by there is a belief that private equity firms will be able to capitalize on recessionary pressures. At present, central banks are walking a fine line managing inflation and growth.
  • 2023 will highlight the difference between sustainable businesses and those that relied on the availability of cheap money. Peaking inflation will provide some reprieve to fixed-income investors.
  • Shifts in global monetary policy will impact property allocations. Real estate accounts for an integral part of HNW investors’ onshore portfolio, yet exposure varies by type of investment as well as jurisdiction. For example, HNW investors have been gravitating towards fund products at the expense of direct holdings in the property space.
  • The environmental, social, and governance (ESG) theme is flourishing within the HNW space. Globally, HNW investors allocate an average of 22.1% of their financial assets to ESG investment products. In addition, demand is far from saturated. 67% of wealth managers expect the proportion of financial client assets allocated to ESG investments to increase over the next 12 months. Just 1% expect to see a decrease.
  • Cryptocurrencies are clearly a speculative asset, and wealth managers need to ensure HNW investors are aware of the risks involved. Digital currencies only accounted for over 1% of HNW investors’ global onshore portfolio as of mid-2022.

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HNW Asset Allocation Market Drivers and Forecast

  • In terms of providing investors with good returns, wealth managers have had a good run in recent years – despite the pandemic-related financial market crash. We also expect pronounced differences across affluent segments. While exposure to risk assets tends to rise in line with affluence, higher advice penetration and greater levels of diversification mean affluent investors are better positioned to navigate volatility and chase returns in a wider spectrum of financial markets that are less accessible to retail investors.
  • Investors will be watching any central bank moves and inflation data releases closely. For now, uncertainty will remain a key theme when it comes to short- to medium-term asset allocation strategies.
  • Inflation remains a key investment driver in 2023. Lower economic growth amid elevated inflation means returns are harder to come by. Central banks have put an end to the era of cheap money. Inflation is taking a good chunk out of investors’ returns, which are harder to come by in the first place. Most economists (as well as our forecasting team) agree that inflation peaked in 2022 or will peak in the first part of 2023.
  • Higher rates are driving deposit uptake, but inflation is eroding returns. Inflation is a key determinant in the stock-picking process. A focus on value stocks such as utilities and consumer staples will pay off as inflation remains a key concern.
  • The importance of price appreciation will see property demand stall or decrease in a number of countries. Wealth managers need to emphasize the long-term view when discussing property.
  • Geographic diversification as an investment driver has been growing in importance, although it still trails asset diversification. To some extent, this can be attributed to investors’ substantial offshore holdings, which minimize the need to internationalize one’s onshore portfolio via the use of funds or similar vehicles. Yet there are certain exceptions where geographic diversification has to become more important.

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Scope

• 55% of wealth managers expect HNW demand for cash and near-cash to increase over the next 12 months as investors shun risk.

• Demand in the equity space is shifting back towards capital appreciation after a punishing year for stocks and shares.

• HNW investors will remain net buyers of commodities in 2023, with expectations of further capital appreciation.

Key Highlights

  • 55% of wealth managers expect HNW demand for cash and near-cash to increase over the next 12 months as investors shun risk.
  • Demand in the equity space is shifting back towards capital appreciation after a punishing year for stocks and shares.
  • HNW investors will remain net buyers of commodities in 2023, with expectations of further capital appreciation.

Reasons to Buy

  • Learn how inflationary fears and resulting market upheaval have affected investment behavior in the HNW space.
  • Identify investment trends and adjust your service proposition based on a detailed understanding of HNW investors’ preferences.
  • Discover how to best promote investment products by learning what is driving investment choices.
  • 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.

Masterworks
Birchal

Table of Contents

HNW Investment Trends

HNW Investment Drivers and Forecast

Appendix

Table

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

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

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