Stay invested, be selective and stick to a long-term wealth plan – that’s the UBS advice, writes Josef Stadler
Levels of optimism in the market are beginning to wear thin at this late stage of the business cycle and this applies to ultra high-net-worth investors too. Our billionaire clients generally believe there will be growth this year, just not much of it. And the geopolitical risks we saw gather last year are becoming harder to ignore – many are concerned they will start to bubble to the surface.
A few years ago we released a report, ‘The Great Opportunity’, which examined how ultra high-net-worth individuals (UHNWs) approach investment. It showed that for this category of investor, the normal rules do not apply.
Because of the scale of their wealth, they can be benchmark-agnostic, more illiquid and more long-termist in their outlook than an average or even high-net-worth investor. Our clients’ strategic asset allocation is set up to withstand short-term volatility or localised shocks.
Yet there are always immediate opportunities and threats to be managed. So how are billionaires responding to today’s challenges?
Firstly, diversification: we have long talked about the benefits of holding a varied, balanced portfolio in terms of asset and geography. At our latest Industry Leaders Network event, in which we bring together some of the world’s leading players in the global economy, this is being reflected back at us more than ever. Attendees seem ready to look broader and commit to shaking up their portfolio in a way they have not before.
Emerging markets are still seen as an opportunity. Last year’s roll-call of bad news for emerging markets – a stronger US dollar, higher US Federal Reserve rates, weakening Chinese growth and the US/China trade dispute – are largely now priced in and their effects are only likely to diminish or even reverse this year.
The particular focus is Asia and, more specifically, China. The economic momentum there is still significant. As our Billionaires Report has shown, the scale and depth of wealth accumulation and the entrepreneurial energy across the region are huge. There were only 16 Chinese billionaires as recently as 2006. Today, they number 373 – nearly one in five of the global total.
It is our view that doubts around China’s short to medium-term prospects are overdone and we can expect further fiscal and monetary stimulus if growth continues to flag.
Secondly, it is about making use of volatility. Not being constrained by the normal rules of liquidity and regulation means that UHNWs are able to make the most of short-term market moves, systematically selling call and put options for example. We can expect more market gyrations this year and our clients are poised to exploit them.
Finally, billionaires are looking through volatility. The financial markets are not necessarily rational and they only tell us so much. Equipped with their illiquidity premium, UHNWs are taking an increasing interest in private markets and opportunities in the real economy. Added to that, there is a growing interest in sustainable and impact investing. As product offers and investment capabilities in this area have progressed, it is no longer the case that you have to choose between your values and your money – Ultra wealthy investors are newly receptive.
None of us can be 100 per cent confident about what this year will bring. But our own advice, for now, remains consistent. Stay invested, be selective and stick to a long-term wealth plan.
Josef Stadler is head of Ultra High Net Worth at UBS