Despite having a risk-off mentality, global high net worth clients are still heavily into holding cash and tech stocks, and could do with diversifying their portfolios, according to Thomas Kennedy, managing director, chief investment strategist, JP Morgan Wealth Management.
His firm, which he described as being one of the biggest pools of non-discretionary, non-benchmark capital in America, has a strong insight into the high net worth market. “From the finance data that I have, they’re wildly bearish,” he says. “They are concerned about the outlook of investable capital. We have US$2+ trillion dollars and 25% to 27% of it over the last few months has been in cash and cash equivalents. The rest of the capital is in risk assets, where current assets are overweight.
The equity books really haven’t changed very much. That average client is significant overweight to the US market, particularly in tech, and most underweight to the rest of the world that we’ve ever seen them, dated back to about 2006.” He observed that, in aggregate, the American residential housing business is seeing more completion than news projects starting up and that is likely to lead to tough decisions over time, potentially including layoffs.
Capital expenditure in small businesses was close to zero last year, with banks unwilling to give and deploy much capital. The transition from delinquencies on credit cards and autos between this quarter and last quarter was about 10%. He noted that the high cash position levels are one way of expressing concern about the near future. “What’s really the most interesting to me is that people have not adjusted their equity portfolios whatsoever,” he said. “They are overweight tech, it has been a great trade for 15 years. In part, this macro discussion will help set the right outlook and the right positioning for the next 15 years. It’s really hard for them to sell these assets which have been a great trade for so long.”
Kennedy observed that there is likely to be a slowdown coming, but he does not think it will be “that bad”, as over the last few months core inflation has come down to around 3.5%. “But the rest of the world is giving everybody a cautionary tale, as the UK has entrenched inflation, and it’s a very difficult position to be in,” he says. “The Bank of England (BOE) really needs to cause a near term recession; these are cautionary tales that if you don’t tackle inflation and have credibility to get there, you have to cause more pain.” The DESK
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