The pathways to wealth are many and varied. For one person it may come from manufacturing, for another it may be entrepreneurial flair, while for another it may come from working the land. A common misconception is that people that have achieved significant wealth are automatically good at managing it, and understanding the investment opportunities available to both protect and grow that wealth.
The reality is while someone may be very clever in their area of expertise, most of us cannot be experts across multiple disciplines. However, we can all seek the help we require to make informed decisions, even in areas where we acknowledge we are not experts.
Citi is an investment expert, and we recognise that for over a decade now it has become more difficult for people to manage wealth in a constantly changing environment.
Since the global financial crisis (GFC) of 2008-09, there has been a series of events that have made investing more problematic. These have included:
- The decent into an extended low interest rate environment, making some of the more common investment products like savings accounts and term deposits less attractive.
- Less stable global environment, driven by a retreat from globalization and the rise of nationalist interests and leading to real and threatened trade wars.
- Increased digital disruption creating both rapid transformation and disruption in many industries, making equity investments more difficult to formulate.
- ‘Black swan’ events like COVID19 have made forward forecasting particularly difficult, even impacting resilient markets like property.
- Lack of knowledge of investment alternatives outside of the big three – cash, shares and property.
The last point showed up clearly in research undertaken this year by Citi, with over half of wealthier investors citing lack of knowledge as the greatest impediment to examining other investment opportunities.
However, investors are also eager to take advantage of what they perceive as improving economic conditions. The research showed wealthier investors are 2.5 times more optimistic about the outlook this year compared to lock-down riddled 2020.
COVID-19 remains the main concern to the outlook, followed by trade wars. Low interest rates is a major concern for less than one-third of surveyed investors.
That is likely because many wealthier investors are also approaching or in retirement, and are more concerned with preserving wealth than high growth strategies. For that reason, they can build portfolios that carry less risk but still provide an acceptable return.
The research shows wealthier investors are still struggling to embrace diversity, with 54 per cent only holding domestic shares in their portfolio. It’s likely increased education on the benefits of diversity both by asset class and geography would see this concentration reduced. Citi’s clients tend to favour greater exploration of investment opportunities available, with 57 per cent taking some form of international investment so far this year.
Two areas that wealthier investors are showing particular interest in is healthcare and property. Australian healthcare stocks, which include some leading global companies, have underperformed our primary share market index, the ASX200, by 30 per cent over the past 12 months.
It is not a phenomenon restricted to Australia. In the United States the price of healthcare stocks, based on forward earnings estimates, trade at a 30 per cent discount to the S&P500 index, which is a weighted index representing the top 500 US publicly-listed companies by market capitalisation.
This indicates a real opportunity to gain an exposure to one of the few sectors remaining that we do not consider expensive, following 15 months of stocks rising since markets started pricing in a COVID-19 recovery.
In property, we expect buying strength to remain robust for the remainder of the year with price growth exceeding 10 per cent for the year. However, we view increasing issues with affordability to temper growth next year, with growth contained below 4 per cent.
Despite outbreaks of the pandemic continuing to impact many parts of the world we are solidly in a global recovery phase. It aligns us with investors optimism going forward, but we remain cautious that volatility has been a consistent driver of markets over the past decade, and will likely remain a significant element in portfolio construction for the foreseeable future.
In that light we continue to seek long term balanced returns from a diversified portfolio that can ride the waves of uncertainty as they emerge.
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This document is distributed in Australia by Citigroup Pty Limited ABN 88 004 325 080, AFSL No. 238098, Australian credit licence 238098. Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your particular circumstances. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product, and consider if it’s suitable for your objectives, financial situation, or needs. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Past performance is not an indicator of future performance.