High net worth individuals are cashed up, debt free and waiting for opportunities. But they are in no hurry to rush back into buying equities, say advisers to people with millions to invest.
Paul Huggins, director of RetireInvest, Melbourne has clients telling him it is a good time to go on holiday and not look at a screen for a month.
General manager of private wealth at National Australia Bank, Angela Mentis, says private clients are taking time to refocus and are reviewing portfolios. Those running their own superannuation funds are revaluing their asset weightings and many are revisiting estate planning and their longer-term objectives.
There are some universal lessons from the behaviour of wealthy investors. Although they have plenty of capacity to borrow, most are debt free. Mentis says clients were moving into cash earlier this year and looking at gold and fixed interest as other safe havens in case there was a crash.
Many are also prepared to sit out the current crisis. Paul Huggins, who manages $1.4 billion in capital, says many clients are closely watching the top 20 listed stocks and real estate market but that is about as far as they would be prepared to invest at this point. Many are happy to sit on their real estate holdings or shares that pay good dividends. They are debt free and cashed up for when the market turns.
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“They don’t hold any debt whatsoever and many got into their stocks very early, for instance paying around $12 a share for BHP Billiton (now around $25),” he notes.
Huggins says one lesson he has learnt from high net worth clients is patience. They won’t be the first buyers back into the markets, he says.
Angela Mentis noticed in February that clients were moving into cash and fixed interest and recalls visiting Perth last year and being struck that when Western Australia was in the midst of a mining boom, clients were telling the Bank’s financial planners that equities were overheated and discussing strategies to take profits and diversify.
She says many have moved into bonds as a safe haven and there was strong interest in the hybrid security raisings announced in recent months by Westpac and ANZ. Westpac raised $600 million by issuing its Stapled Preferred Securities, which will yield 2.4 per cent over the three-month bank bill swap rate. Westpac said at the time the securities might be attractive to retail investors wanting a fully-franked dividend. ANZ’s $1 billion convertible preference share offer will pay a margin of 2.5 per cent over the 90-day bank bill rate and is expected to be fully franked. Both convert into ordinary shares, Westpac’s in 2013, ANZ’s securities in 2014.
Mentis says clients saw the hybrids as a way to invest in the banks through an instrument that was a mix of debt and equity. “It is a listed instrument so you can see how it trades but it gives you a yield.”
Although wealthy private clients are sitting on the sidelines, they are staying in close contact with their financial planners. Paul Huggins says although clients are in no hurry to dive back into any market, they are staying informed and keeping up with the companies and investments they prefer. Angela Mentis says the phones are still ringing for the Bank’s financial planners as clients want to know how their savings will be affected by the Federal Government’s guarantee of bank deposits or how offshore earnings are being affected by currency movements and what strategies they might implement.
Both Mentis and Huggins say that although clients have been through previous crashes, many say earlier meltdowns have not been as fast or severe as the current one, probably a reflection of globalization.
Mentis says clients tell her they will continue with conservative strategies for a while yet. “That said, in high net worth when opportunities come up you do see them go into the market,” she says.
Many of them are entrepreneurial types who have run their own businesses or backed start ups and are savvy enough to spot opportunities and analyse how exchange rates and global moves might benefit the economy and particular companies. She says some bought blue chip equities earlier this month because they could see value in solid companies with strong balance sheets. Mentis believes coming months will see a return to this type of fundamental analysis, with investors doing their homework on companies and understanding exactly what they are getting into.
“This will show again that you need to understand and research before you go into any investment,” she says.