A survey by fund manager Capital Group has shown that 78% of global high-net-worth (HNW) investors are currently holding significant cash reserves.
“Reserved” about getting invested, almost half of the HNW investors now consider bonds to be as risky as equities, indicating a shifting perception of traditional safe-haven assets.
Among the reasons cited for concern over the next 12 months include a fear of higher volatility, faster inflation and rate increases.
“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”, said Alexandra Haggard, head of asset class services, Europe and Asia, Capital Group.
Inflation and tax rises top HNWI’s list of concerns
“History has shown that fixed income and equity outpaced cash after the Fed finished hiking rates. Taking a long-term view, now is the time to make the shift out of cash,” added Haggard.
Despite prevalent geopolitical uncertainties causing hesitation among investors, there remains a prevailing optimism regarding long-term investment prospects, according to the research.
63% of respondents intend to increase their equity investments over the coming year, with one-third citing “good value” as a driving factor.
Additionally, 49% are considering boosting allocations to bonds, particularly “higher quality fixed income”, according to the study.
The findings also indicated a strong preference for government bonds (90%), high yield bonds (85%), and investment-grade corporate bonds (84%) among HNW investors.
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Furthermore, a majority (58%) believe that both fixed income and equities pose lower risks than cash over the next decade, citing their potential to outpace inflation.
Scott Steele, fixed income asset class lead, Europe and Asia, Capital Group, added: “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.”
