Although central bank interest rate cuts are looming on the horizon, 78% of high net worth investors worldwide hold a significant cash position, according to a survey conducted by Capital Group, the world’s largest active fund manager. What concerns these investors the most in the next twelve months is an increase in volatility. But there are other elements that generate worry. After increased volatility comes the fear of inflation, and the possibility not only that interest rates may not decrease, but that there may even be an increase.
However, taking refuge in liquidity in the current market context is not the most efficient, as reminded by Capital Group: “Historically, cash interest rates decline rapidly once central banks reach their peak level, so for high net worth investors, holding too much cash in a portfolio could hinder long-term wealth generation,” says Alexandra Haggard, head of asset class services for Europe and Asia at this fund manager. “History has shown that fixed income and equities outperformed cash when the Federal Reserve finished raising rates. From a long-term perspective, we believe now is the time to move away from cash,” she points out.
As for how these high net worth investors will position themselves, 63% plan to invest more in equities, while 49% are considering increasing the weight of fixed income, with a clear preference for higher quality debt.
“Despite macroeconomic 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 offers abundant sources of yield, risk factors, and returns. The return of income to fixed income means that investors can benefit by putting cash to work in high-quality bonds with attractive yields for potential future income,” says Scott Steele, head of fixed income, Europe and Asia, Capital Group.
