High net worth investors not shaken by COVID, low interest rates

Key findings:

• 49% of high net worth investors are positive about the economic outlook for 2021, with a further 40% feeling neutral
• High net worth are bullish on real estate, health care and information technology as their predicted top three sectors in 2021
• Diversification remains problematic, with most high net worth only invested in 4 asset classes, on average

New research from Citi Australia has revealed that confidence is key for bullish high net worth investors, and they feel 2.5 times more optimistic about 2021 than they were about 2020.

When asked to identify their top concern for 2021, the global economy ranked first, followed by COVID-19 and trade wars. Respondents aged under 50 were significantly more concerned about COVID than their elders, and less concerned with the economy.

Only 27% of high net worth investors surveyed said they were concerned about low interest rates, compared to 54% being concerned about COVID.

Commenting on the research, Citi Australia's Head of Banking and Wealth Distribution Gofran Chowdhury said "Interestingly, low interest rates did not rank as an area of concern for high net worth investors, despite this being a major factor influencing the return investors can generate. We can hypothesize that high net worth investors are not chasing returns to create wealth, they are instead focus on preserving their wealth."

Investment outlook

According to the survey, real estate took out the top prize for sectors expected to perform the best in 2021, narrowly followed by healthcare and information technology. Conversely, the top three sectors high net worth currently hold shares in are finance, industrials and telecommunications.

"At Citi, we largely agree with the surveyed investor's predictions as we anticipate property will continue to do well this year. We are also positive on healthcare, as with our rising ageing population we expect the sector to benefit in the future. While we are no doubt moving towards a digital world, the recent rise in yields is pushing down higher valued 'growth' equity like information technology, causing us to prefer shares that are expected to be profitable today, rather than in the future," Mr Chowdhury said.

The research also showed that 52% of high net worth investors only hold shares domestically, with a further 44% holding shares both domestically and internationally, and only 4% of respondents limiting themselves to international shares.

"While the research shows a large number (44%) of high net worth investors do hold international shares, Citi's own clients are more inclined to invest globally with 57% of our clients investing internationally just looking at year to date investments. This can be attributed to Citi being a global bank, as many clients come to us for guidance on International investments," said Mr Chowdhury.

The diversification problems persists

Over half of high net worth investors surveyed agree that diversifying their portfolio is their top priority.

Looking at their asset allocations, savings accounts, shares and investment properties remain the dominant asset classes held by these high net worth individuals. Additionally, high net worth investors on average hold 3.7 asset classes and invest in 4.2 sectors.

"Diversification is a problem that permeates Australian investing, with a culture of only looking at properties, shares and cash still remaining king. This is particularly problematic in today's volatile, low-rate environment, as investors are missing out on potential upside associated with further diversification across different geographies and asset classes" Mr Chowdhury added.

The research reveals that the biggest barrier to investment for financial products including bonds, structured products and foreign currency trading accounts is a lack of knowledge. Term deposits is the exception, with low interest rates voted the greatest barrier.

"At Citi, we have a strong focus on investor education, something that is invaluable for new investors all the way through to high net worth investors. The fact lack of knowledge persists as a key barrier only emphasizes this importance.

"Our recently launched Citi Wealth Academy, a video series focusing on in depth education for investors is tailor made to help Australians understand more complex asset classes and how they can best work for them," Mr Chowdhury concluded.