HNW Asset Allocation Trends 2017

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HNW investment preferences are the result of an interplay between a multitude of factors, such as macroeconomic and political conditions, risk-preferences, demographic factors, and investor attitudes. Over the next 12 months we expect further portfolio reallocation to benefit risk assets, as HNW investors globally are looking for cheap buying opportunities amid turbulent market conditions. However, there continue to be significant regional differences. The typical HNW portfolio in Asia Pacific and the Middle East is significantly more conservative than elsewhere globally, with above-average allocations to property and cash and near-cash products. However, falling or stagnating property prices in some countries in these regions are set to cub investor demand over the next 12 months. In the West, investors are more willing to embrace risk and HNW clients favor equities, hoping that index movements will continue to provide opportunities. We also forecast increasing demand for alternatives, as HNW investors are looking for new means of diversification; however, a certain amount of hand holding will be required to capitalize on rising demand for the asset class.

This report draws on our 2016 Global Wealth Managers Survey to analyze HNW asset allocation strategies in 17 key markets. In particular, it examines the drivers behind investment choices now and over the next 12 months.

Specifically the report –
– Analyzes HNW asset allocation strategies in 17 key HNW markets, including Australia, the UK, and the US.
– Examines the drivers that determine HNW investment preferences.
– Interprets macroeconomic, demographic, and attitudinal trends, such as risk preferences that are shaping HNW investment behavior.

The report is accompanied by an online interactive dashboard to enable users to select and view the data of their choosing.

Scope

– The most striking trend in 2016 was the surge of risk assets, as investors are more willing to take on risk in the current low-yield environment.

– HNW equity holdings will experience the biggest increase in demand as HNW investors continue to look for capital appreciation opportunities, hoping to take advantage of cheap buying opportunities.

– The typical HNW real estate portfolio is increasingly skewed towards non-direct property investments; offering real estate investment trusts (REITs) is a must in the HNW space.

– We forecast increased demand for commodities, which are regarded as a wider markets hedge. This will drive demand for gold in particular. However, betting on a sustained commodity price rebound will lead to further diversification.

– Alternatives are becoming an increasingly attractive diversifier, as investors are losing faith in bonds and are looking for returns elsewhere. Asset diversification is the single most important driver for alternatives.

Reasons to Buy

– Understand how to best promote investment products by learning what is driving investment choices.

– Understand investment trends, and adjust your service proposition based on a detailed understanding of HNW investors’ investment preferences.

– Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investment drivers.

– Learn how and why investment preferences will change over the next 12 months.

ANZ
Deutsche Bank
JPMorgan
and UBS
Eiffel Management
Dubai Islamic Bank
Mashreq Bank
Scotiabank
Commonwealth Bank of Australia

Table of Contents

Table of Contents

EXECUTIVE SUMMARY 2

1.1. HNW investments preferences are shaped by a multitude of factors 2

1.2. Key findings 2

1.3. Critical success factors 2

2. REGIONAL ASSET ALLOCATION TRENDS 9

2.1. The global HNW portfolio is well diversified 9

2.1.1. The typical HNW portfolio is increasingly exposed to risk assets 9

2.1.2. The recent commodity price rebound has yet to manifest itself in the average HNW portfolio 10

2.1.3. The allure of property as an investment option has somewhat faded 11

2.2. HNW investors have strong appetite for direct equity, local currency products, equity funds, and bond funds 12

2.2.1. Equity funds and ETFs are becoming increasingly popular 12

2.2.2. While the average HNW bond portfolio is well-diversified, bond funds continue to dominate 13

2.2.3. Local currency products prevail as part of HNW investors’ cash investments, but there are exceptions 15

2.2.4. Offering REITs is a must in the HNW space 16

2.2.5. Hedge funds are the preferred alternative investment product among HNW investors 17

2.2.6. Funds are the go-to investment when it comes to commodities 18

2.3. There are significant regional differences when it comes to HNW investors’ asset allocation preferences 19

2.3.1. HNW investors in the West are significantly exposed to equity risk 19

2.3.2. Real estate features prominently in the typical HNW portfolio in Asia Pacific and the Middle East and Africa 20

2.3.3. Commodity holdings can be found across the world, but are particularly pronounced in Asia Pacific 21

2.3.4. Demand for alternatives is particularly strong in North America and Asia 22

3. HNW INVESTMENT DRIVERS 23

3.1. Equity holdings are driven by capital appreciation opportunities 23

3.1.1. Cheap buying opportunities are driving equity investments 23

3.1.2. Capital appreciation potential will continue to drive HNW demand, but not everywhere 24

3.2. Dividend income as a driver of equity investments is becoming increasingly important 26

3.2.1. Geographic diversification is driving equity investment in Russia 27

3.3. Bonds are traditionally important to risk-averse HNW individuals 28

3.3.1. Quantitative easing and political uncertainty will continue to have a negative effect on bond holdings in Europe 28

3.3.2. Risk aversion and asset diversification are the main drivers of bond investments 29

3.3.3. Current returns are important considerations in many emerging markets, and wealth managers will do well to educate clients about the risks involved 30

3.4. Cash and near-cash products are favored as a means of “parking” wealth and maintaining liquidity 31

3.4.1. HNW investors are forecast to increase their cash holdings, albeit only slightly 31

3.4.2. Being ready for future investment opportunities and a desire to maintain liquidity are the top drivers for cash investments 32

3.4.3. Rising consumer confidence will have an adverse effect on deposit holdings in Europe 34

3.4.4. The uptake of financial advice will lead to further portfolio diversification away from deposits – at least in some markets 35

3.5. Real estate investments are driven by price movements and a desire to be able to rely on rental income 36

3.5.1. Global HNW investments in real estate are forecast to rise 36

3.5.2. Property price movements and rental yields are the main drivers for HNW investments in real estate 37

3.5.3. Price appreciation is of particular importance in Asia 38

3.5.4. In Europe the perception of safety, diversification benefits, and rental income are more important than capital growth 39

3.6. Alternative investments are becoming increasingly important for their diversification benefits 40

3.6.1. HNW demand for alternatives is forecast to increase in all but one country 40

3.6.2. Asset diversification benefits have emerged as the top driver for HNW alternative investments 41

3.6.3. Future capital appreciation remains important, but less so than a year ago 41

3.6.4. Expansion of P2P lending and crowd-funding platforms is driving demand for alternatives in Hong Kong 42

3.6.5. Other HNW drivers for alternatives include dissatisfaction with traditional asset classes, the perception of exclusivity, and current returns 43

3.7. Commodities largely act as a diversifier, but capital appreciation opportunities seem appealing too 43

3.7.1. Demand for commodities is set to rise in the majority of countries surveyed 43

3.7.2. Their reputation as an important diversifier has seen commodities become an integral part of the typical HNW portfolio 44

3.7.3. HNW investors in Asia Pacific are betting on capital appreciation opportunities 45

3.7.4. The perception of safety is becoming an increasingly important driver in the commodity sphere 46

4. APPENDIX 47

4.1. Abbreviations and acronyms 47

4.2. Supplementary data 47

4.3. Definitions 52

4.3.1. HNW 52

4.3.2. Liquid assets 52

4.4. Methodology 53

4.4.1. GlobalData’s 2016 Global Wealth Managers Survey 53

4.4.2. GlobalData’s 2015 Global Wealth Managers Survey 53

4.5. Bibliography 53

4.6. Further reading 54

Table

List of Tables

Table 1: Importance of dividend income as a driver for equities; dividend growth (%); and dividend income ($bn), 2016 26

Table 2: Equity index movements and gross rental yields in Europe, 2016 39

Table 3: HNW investment drivers by country: equities, 2016 47

Table 4: HNW investment drivers by country: bonds, 2016 48

Table 5: HNW investment drivers by country: cash and near-cash products, 2016 49

Table 6: HNW investment drivers by country: property, 2016 50

Table 7: HNW investment drivers by country: alternatives, 2016 51

Table 8: HNW investment drivers by country: commodities, 2016 52

Figures

List of Figures

Figure 1: The typical HNW portfolio is becoming increasingly exposed to risk assets 10

Figure 2: Commodity prices have rebounded but remain low 11

Figure 3: The IMF’s Global House Price Index has almost reached 2008 levels 12

Figure 4: Direct equity investments constitute the single largest component, but taken together fund holdings dominate 13

Figure 5: Emerging markets are still considered an attractive investment destination 14

Figure 6: Bond funds form the largest component of HNW investors’ fixed-income investments 15

Figure 7: Local currency products are the most common type of cash investment 16

Figure 8: A significant proportion of HNW wealth is locked up in property 17

Figure 9: Hedge funds dominate in HNW investors’ alternatives portfolios 18

Figure 10: Mutual funds form the largest component of HNW investors’ commodity investments 19

Figure 11: Global markets have been subject to significant volatility 20

Figure 12: Investors’ attitude towards risk differs significantly across the globe 22

Figure 13: The majority of wealth managers expect HNW equity demand to rise 23

Figure 14: Capital appreciation opportunities are motivating HNW investors to channel their wealth into equities 24

Figure 15: HNW investors are becoming more inclined to seek financial advice 25

Figure 16: Geographic diversification benefits are a key consideration among Russian HNW investors 27

Figure 17: Global demand for bond holdings will be varied 29

Figure 18: Risk aversion is driving bond investments in the HNW space 30

Figure 19: Global HNW cash holdings will increase over the next 12 months 32

Figure 20: HNW investors in Germany are looking for cheap buying opportunities 33

Figure 21: Being ready for future investment opportunities is the top driver for cash investments 34

Figure 22: Rising consumer confidence will result in deposit holdings declining 35

Figure 23: There is a significant opportunity to be had in China 36

Figure 24: HNW property investments are largely forecast to rise over the next 12 months 37

Figure 25: Property price appreciation is the number one driver of real estate investments 38

Figure 26: HNW demand for alternatives in Australia is forecast to skyrocket 40

Figure 27: Capital appreciation is the number one driver of alternative investments 42

Figure 28: Commodity holdings are set to increase in the HNW space 44

Figure 29: The benefits of asset diversification are driving commodity investments 45

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