78% of global high-net-worth (HNW) investors currently have relatively large cash holdings, according to a survey by Capital Group, the world’s largest active fund manager, with assets under management of more than US$2.5 trillion.
Reserved about getting invested, almost half (48%) of the HNW investors now consider bonds to be as risky as equities. Among the reasons cited for concern over the next 12 months include a fear of higher volatility (60%), faster inflation (56%) and rate increases (41%).
“It’s easy to be parked in cash, but we believe that perhaps the biggest market risk today is holding excess cash. Cash rates historically decay quickly after the peak in central bank rates, hence for high-net-worth investors, having too much cash in a portfolio could hinder their long-term wealth generation”, comments Alexandra Haggard, Head of Asset Class Services, Europe and Asia, Capital Group. “History has shown that fixed income and equity outpaced cash after the Fed finished hiking rates. Taking a long-term view, we believe now is the time to make the shift out of cash.”
While geopolitics is seen as a major risk, causing 55% of investors to be increasingly uncertain about where to invest, there is longer-term optimism:
- 63% plan to invest more in equities over the next 12 months, with one-third citing good value as a reason for the increase.
- Investors are considering increasing allocations to bonds (49%) within a year, with a bias towards higher quality fixed income.
- 90% of HNW investors favour government bonds, 85% favour high yield bonds and 84% veer towards investment grade corporate bonds.
- Among the HNW investors surveyed, 58% expect fixed income and equities to be less risky than cash as they can beat inflation over the next ten years.
Scott Steele, Fixed Income Asset Class Lead, Europe and Asia, Capital Group, adds, “Despite the macro uncertainty, this environment still presents opportunities for long-term investors focused on fundamentals. Bonds play a central role in a well-diversified portfolio and the expansive global fixed income market presents broad sources of yield, risk factors, and returns. The return of income to fixed income means that investors can benefit from putting cash to work in high quality bonds with attractive yield for potential future income.”
