Interesting trends in HNW asset allocation highlight investment cycle


Adam Murchie

At Forza Capital, the team spends a lot of time speaking to both real estate agents and investors. There is no substitute for being at the ‘coal face’ for eliciting information that often precedes cycles or opportunities (or both).

For some time, these discussions have been uncovering a subtle pivot in asset allocation, in particular an increasing allocation to cash and a reduction in assets that are seen to have reached their cyclical peak.

According to the Capgemini Asia Pacific Wealth Report 2017, there have been several changes to the 2017 asset allocation of Australian High Net Wealth (HNW) investors when compared to their previous years’ report, as illustrated in figure one.



“While we are not suggesting a correction in property or bonds near term, there is a distinct investment link between the two,” said Adam Murchie, Director of Forza Capital.

“Given upwards pressure on bond yields, it is natural to see investors dialling back risk in both sectors.

“We have seen a number of clients exit investments where they feel the value adding has been completed.”

Mr Murchie continued, “The consensus has been that holding the investment for an extended period exposed them to greater risk than the future return profile would support, therefore they were better to convert to cash, sit tight and wait for future opportunities.”

Broadly, Forza tends to share the view of the HNW investors and is keeping an eye on bond pricing and property capitalisation rates in certain parts of the market. Debt can’t be priced at these levels forever and any mean reversion will hurt assets on very tight capitalisation rates.

“Notwithstanding this commentary, there are several areas where we identify opportunity, although it’s necessary to be prudent to ensure than any acquisition is robust enough to withstand any market shocks,” said Mr Murchie.

HNW versus retail asset allocation

The HNW asset allocation data presented in figure one differs considerably from traditional asset allocation for retail clients, which is illustrated in figure two.



Clearly, HNW investors have a much higher allocation to property and cash, which is consistent with Forza’s experience. This is further supported by the BRW Rich 200 List where asset allocation to property featured heavily; of the list, 80 people (40%) either made their wealth in property or use it as a major store of their wealth. On the same basis, property was a primary asset class for 47.55% of the Rich List wealth.

“This demarcation between the investment allocation of the wealthy and that applied to retail investors has always interested us,” said Mr Murchie.

“We often wonder why retail investment allocation is not more closely aligned to those who have had immense investment success.

“These statistics support what we see with our clients; many have a high cash weighting at the moment and are more comfortable with less liquid investments than retail investors.

“This liquidity element is interesting to us; when we speak to people about the need for liquidity, it is safety mechanism allowing them to exit an investment if they need to. If you drill down further, most have no intention to liquidate, and if they did so, it would likely be at an inopportune time as they respond to market cues.”

Interestingly, for a traditional retail investor’s portfolio, 90% of their portfolio volatility comes from their 60% allocation to equities. It is no wonder then that HNW investors favour more illiquid assets, property in particular, to mitigate portfolio fluctuations and risk.

We only wonder why more people in the investment sector don’t take notice.

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