MARKETS SPECTATOR: No shares for the wealthy

Burnt by the global plunge in stock prices following Lehman Brothers’ bankruptcy in 2008, wealthy individual investors prefer bond funds or derivative stock investments that promise a yield, according to the head of investments at one of the world’s biggest banks.

Many of the wealthy investors no longer trust fund managers or financial advisers after losing considerable sums of money in 2008 and 2009, says the executive. Such people want to control where they put their money and the timing of when they buy and sell. Their use of brokers or fund managers is for processes rather than advice or wealth management.

The executive says there has been little evidence the bank’s clients have participated in the 24 per cent gain in S&P/ASX 200 Index over the last 12 months. Nor are they are tempted to devote some of their wealth in local stocks following the market’s rise. Gains in share prices have been fueled by institutional investors. Superannuation funds that have significant monthly fund inflows have always shown an investment bias toward Australian shares.

Wealthy investors, unlike their institutional counterparts, are investing in investment grade bonds, much of it issued by US companies, according to the executive. Investment products that are derivatives of US stocks such as Apple and Google that can be redeemed at par and promise a yield are also popular. Clients have also made bets on the US dollar appreciating compared to the Australian dollar and the Japanese yen depreciating.

Those wealthy investors who still have stock investments are concentrating on very few, a dozen or less, says the executive. These investors have typically followed the shares for years and invested in them through many economic cycles. They are comfortable selling them at prices they think are highs and buying them at prices they perceive close to good value.