Wealth institutions to increase allocations to equities and Asia

Clients understandably view investment performance as a key measure of the value of their private banking relationships. But in these volatile times, asset allocation has taken on new importance as clients look to their wealth managers for advice as to where to shelter from the current storm, and potentially benefit from opportunities created.

The Scorpio Partnership HNW Asset Allocator IV report took a close look at the strategies being recommended by the world’s wealth institutions.

The full report captures the views of 31 chief investment officers and investment strategists at wealth institutions advising $6,800bn in assets – 40 per cent of the global wealth market.

Key findings of the report show that, compared to Q4 2009, equities are still the main component of balanced portfolios, that the use of alternatives continues to rise – even as the mix of preferred instruments changes – and that fixed income is suffering from a crisis of confidence.

Trends indicate that equities will play a larger role in future allocations with 50 per cent of respondents increasing their allocation, while 26 per cent plan to decrease their allocation to fixed income over the next six months. Alternatives will also suffer, with 30 per cent planning on decreasing their allocation to gold.

Overall, the move back into equities, private equity and real estate shows that there is some optimism about future growth, especially compared to the low expectations around fixed income and cash.

The report details further shifts along geographic lines, and not surprisingly there is an overweight to growing Asian and Latin American markets and a distinct shunning of the eurozone across asset classes.

While the appetite for growth markets was apparent across the board, it was interesting to note that Asian respondents were far more likely to increase allocations to Latin America in the next six months. This may highlight the growing trend toward South-South trades, bypassing exposure to more traditional markets.

As happened in 2011, market events may lead some to postpone making the changes they have indicated to us in the recent survey, but if the optimism holds we will notice a significant shift in the allocation to risk assets when we look again in six months’ time.

Bill Yelverton is executive director at wealth management think-tank Scorpio Partnership