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HNW assest allocation trend analysis

akhilesh21 Sep 2022 Business

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.

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.

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