The world's richest investors are loading up on safe assets — at exactly the wrong time as the S&P 500 is rallying.
High net worth individuals (HNWI), with investable assets of $1 million to more than $30 million, boosted their exposure to fixed income by five percentage points to 20% as of January 2024, says a just-released report from Capgemini Research Institute. That was the largest jump of exposure of any major asset class.
Unfortunately, it was exactly the wrong time to play it safe. The Vanguard Total Bond Market ETF dropped 0.7% in the past 12 months. That might not sound terrible. But the problem is these wealthy investors also cut their exposure to S&P 500 stocks by 2 percentage points to 21%. And the Vanguard Total Stock Market ETF jumped more than 23% in the past 12 months.
"Fixed-income assets were complicated in 2023, as high inflation diluted inflation-adjusted (real) returns from fixed-income assets even as interest rates were high, making them less lucrative for HNWI," the report said.
Not All Safety
High net worth individuals aren't just playing it safe, though.
The biggest drawdown in asset exposure was in cash and cash equivalents. High net worth investors cut their allocation to cash to 25%. That's a massive drop of 9 percentage points from the panic-stricken period of January 2023. That's despite the availability of 4.5% or higher yields on cash. The JPMorgan Ultra-Short Index ETF is yielding 5.2%. Cash is still the largest position of rich investors.
Meanwhile, super rich investors are dipping their toes back into real estate and alternative investments.
Real Estate And Alternatives To S&P 500
Where are wealthy investors putting the money they've pulled out of cash?
Real estate is a major target. Investors boosted their exposure to real estate by four percentage point to 19%. Investors are no doubt attracted to the asset class' plump 4.2% yield. The Vanguard Real Estate ETF is up 1.7% in the past 12 months.
But investors are also going for alternatives like private equity, too. Again, strong yields are a draw. The IQ Hedge Multi-Strategy Tracker ETFQAI yields 4%. And the ETF is up an additional 5.3% in the past year.
Rising Numbers Of Rich
Watching the moves of the wealthy is only getting more important as their ranks grow. Globally, the number of high net worth individuals rose 4.7% in 2023, says Capgemini. And the population of wealthy investors is up 7.1% in North America.
Additionally, thanks to a strong S&P 500, North American high net worth individuals' wealth is up 7.2%.
We'll see if these newly uber-rich keep playing it safe with bonds or jump back into the S&P 500.
High Net Worth Moves Beyond S&P 500
| Asset Class | 2024 % Allocation | 2024 Allocation change | Representative ETF | Symbol | 1-year % ch. | Yield |
|---|---|---|---|---|---|---|
| Cash, Equivs. | 25% | -9% | JPMorgan Ultra-Short Income | 0.6% | 5.2 | |
| Stock | 21% | -2% | Vanguard Total Stock Market | 23.6% | 1.3 | |
| Fixed Income | 20% | 5% | Vanguard Total Bond Market | -0.7% | 3.4 | |
| Real Estate | 19% | 4% | Vanguard Real Estate | 1.7% | 4.2 | |
| Alternatives | 15% | 2% | IQ Hedge Multi-Strategy Tracker | 5.3% | 4.0 |
