Rich investors are taking more precautions than ever in their wealth, and instruments once seen as complex and exotic are becoming more commonplace in their portfolios, wealth managers said at the Reuters Private Banking Summit.
Asset classes such as foreign exchange, gold, oil and industrial commodities are beginning to have specific and identifiable hedging roles in portfolios, beyond the broad brush “diversification”.
That is a far cry from three years ago, when investors spread money around asset classes and managers in the vague hope that broad enough diversification would help them make money in all market conditions, or at least preserve wealth.
That notion disappeared during the financial crisis, along with around $12 trillion of market value.
Investors still want exposure to emerging markets, but they fear leveraged investments in volatile equities markets, where they were badly burned during the crash.
But, their hunger for growth unabated, this time investors are plumping for emerging markets bonds.
They are also looking to protect themselves against the vagaries of the economy.
They are hedging against inflation by taking exposure to industrial commodities and oil.
As for gold, a traditional hedge against inflation, they see it now as protection against possible deflation or the continued devaluation of major currencies.
For the same reason, many are also buying baskets of emerging markets currencies such as the
This broad diversification may not save them if markets again all slump in tandem.
But this time at least they know what they are doing, and why they are doing it.
