Published On

June 9, 2014

Published In


EXPERT’S PODIUMWhat high net worth investors are doing right nowThane StennerPublished on Tuesday, April 10, 2012Every quarter Tiger 21 surveys its 185 U.S. and Canadian members about the composition of their portfolios. It’sa small sample, but the data can give you a good idea of where high-net-worth investors are currently puttingtheir money. (Tiger 21 is an exclusive peer-to-peer investing and wealth management network for individuals withinvestment capital of at least $10-million.)The wealthy don’t have perfect timing when it comes to investing-nobody does. But they do tend to be ahead ofthe curve when it comes to identifying investment trends and opportunities. This is how they created their wealth:by building businesses to capitalize on trends they’ve noticed, and by investing when they’ve seen intriguingopportunities develop in the public markets.By looking closely at what the wealthy are doing with their portfolios (and just as importantly, what they’re not doing)you can get a “sneak peak” as to where they might be seeing opportunity-and danger-in the market.Here are the allocation data for the most recent quarter ending March 31. The second graph charts allocation datafrom as far back as the fourth quarter of 2007, to give you an idea of how that allocation has changed as we’vemoved through the financial meltdown and Great Recession of the past several years.Looking at the data (above), I can see three interesting trends. They’re worth keeping in mind as you make your ownallocation decisions over the next several monthsSlow, steady confidence in equitiesLooking at how the equity allocation has changed over the past several quarters, you get the sense that the wealthybelieve “slow recovery” scenario is for real. You can see it better when you look back at the equity allocation sincethe first quarter of 2010: from a low of 18 per cent, there’s been a gradual building back of exposure.It hasn’t happened all in a rush. The wealthy remain cautious-they’re “picking their spots” as it were. I believe thisis likely to be the way the market progresses from here on in: slowly, cautiously, without the big run-up or surge thatwe typically see coming out of other recessions.Perhaps even more intriguing is the allocation to “private equity.” While the term encompasses a number of differentinvestments – speculative plays, start-ups, angel investments – generally speaking, there’s a lot more risk herethan with publicly-traded equities. As you can see, the allocation to this asset class is at an all-time high. I think thisis a real sign of confidence in the nascent economic recovery, and the opportunities created by it.Now is not the time for fixed incomeThere’s been a lot of talk lately about interest rates: when they’re going up; by how much; and what sort of implicationsthat has on the broader economy, and the markets in general.It seems the wealthy are taking this opportunity to trim back their exposure to fixed income, likely in anticipation ofinterest rates playing havoc with bonds. You can see current allocation is 15 per cent, close to the all-time low backin 2007. I’m guessing this accounts for some of the shift toward equities as well, as historically low bond yields drive someinvestors to seek out the dividends offered by blue-chip equities as an alternative. This is a trend that’s been going onfor several months now among all segments of the investing public, not just the wealthy.I want to be clear here: there will always be a place for bonds and other fixed-income investments in the portfolio. Thisis no different with the wealthy than with the overall population. But it seems the wealthy believe that this is not thetime to go “all in” on fixed income.Real estate: the wealthy still believeReal estate has long been a favourite asset class of the wealthy. Indeed, real estate remains one of the primarysources of wealth for many of the world’s wealthiest families. There is no reason to believe this will change in thefuture.Interesting that the latest data suggest that the belief in real estate hasn’t changed all that much over the past severalyears, despite one of the most challenging real estate markets (particularly in the U.S.) in history: current allocationstands at 24 per cent, just 2 per cent lower than its high back in 2008.Keep in mind that the data don’t indicate what kind of real estate the wealthy are investing in (i.e., residential,recreational, commercial, industrial). Nor do they show which market(s) those investments have been made. So theremight be a story there that the numbers don’t really speak to. Even so, I think the data suggest that, if anything, thewealthy have viewed the great real estate shake-down of the past several years as a buying opportunity rather thana reason to sell everything and stuff the cash under the mattress.Wealthy investors have built and protected their wealth by allocating capital well. They’ve been patient, and they’vegotten their asset allocation decisions mostly right over the longer term. I think it makes a lot of sense for investors toconsider these trends.