'Safe' Asset Loses Shine, Leaving High-Net-Worth Investors Reeling

High net worth individuals increased their exposure to fixed income by 5 percentage points to 20%, despite the Vanguard Total Bond Market ETF (BND) decreasing by 0.7% over the past 12 months, while reducing their S&P 500 equities exposure by 2 percentage points to 21%, even though the Vanguard Total Stock Market ETF (VTI) increased by over 23%.

Wealthy investors significantly decreased their cash holdings by 9 percentage points to 25%, even with attractive cash returns available, while extremely wealthy investors are increasingly investing in real estate and alternative investments like private equity for higher yields.

The number of high-net-worth individuals globally increased by 4.7% in 2023, with North America seeing a 7.1% rise in affluent investors and a 7.2% increase in their wealth, driven by a strong S&P 500 performance.

According to a recent analysis from Capgemini Research Institute, as of January 2024, high net worth individuals (HNWI) with investable assets ranging from $1 million to over $30 million increased their exposure to fixed income by five percentage points to 20%. Out of all the main asset classes, that was the highest growth in exposure.

Regretfully, this was precisely the incorrect moment to exercise caution. Over the last 12 months, the Vanguard Total Bond Market ETF (BND) decreased by 0.7%. That may not sound all that bad. However, a further issue is that these affluent investors reduced their exposure to S&P 500 equities by 2 percentage points, to 21 percent. Moreover, within the previous 12 months, the Vanguard Total Stock Market ETF (VTI) increased by more than 23%.

Shifting Investment Strategies Among Wealthy Investors

However, wealthy people aren't the only ones who are cautious.

The asset class with the largest decline in exposure was cash and cash equivalents. Wealthy investors reduced their cash position to 25%. That represents a dramatic 9 percentage point decline from the terrified period of January 2023. This is true even when cash returns of 4.5% or more are available. 5.2% is being yielded by the JPMorgan Ultra-Short Index ETF (JPST). Rich investors still hold the majority of their holdings in cash.

Meanwhile, extremely wealthy investors are returning to the real estate and alternative investment markets.

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Where Are They Investing?

Where are affluent investors placing the capital they have taken out?

One important objective is real estate. Investors increased their real estate exposure to 19%, a four-percentage-point increase. The asset class's fat 4.2% yield is undoubtedly luring investors. Over the last 12 months, the Vanguard Real Estate ETF (VNQ) has increased by 1.7%.

However, investors are increasingly choosing other options, such as private equity. Once more, high returns are a lure. Yielding 4% is the IQ Hedge Multi-Strategy Tracker ETFQAI. Additionally, the ETF has gained 5.3% over the last 12 months.

As the ranks of the rich increase, it becomes increasingly crucial to observe their movements. According to Capgemini, the number of high-net-worth individuals increased by 4.7% globally in 2023. The number of affluent investors in North America has increased by 7.1%.

Furthermore, the wealth of high-net-worth individuals in North America has increased by 7.2% due to a robust S&P 500. We'll see if the recently extremely wealthy continue to invest in bonds or return to the S&P 500.

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