While 2021 ruined the financial goals of all investors holding their breaths for an economic boom after vaccinations arrived in the mid, the stock markets still saw a raging comeback throughout the year. NASDAQ, for example, had a record-high return of 27.39% despite the dramatic inflation.
Investment strategies in 2021 for the high net worth individuals (HNIs) and the Ultra HNIs have changed drastically to factor in the pandemic’s impact on certain investment assets. Many millennial HNIs focused on gaining from the market hype and volatility in India and the US. Conventional investors, on the other hand, stuck to more stable and long-term plans.
While the signals of the expected investor behavior in 2022 are quite mixed, everyone is eyeing the HNIs to draw inspiration.
Well, here are the five key trends that are expected in HNI investment strategies going ahead in the year.
Redefining Investment Goals & Assets
To summarize the situation, HNIs are still trying to revamp their portfolio models to factor in future uncertainties. Joshua Brown, the founder of Ritholtz Wealth Management, has gone so far to say, "Throw [out] your [portfolio] model. It doesn't make sense." during one of his panel discussions. So going back to growth stocks without calculating the probable market risks in the coming year doesn’t seem like a plan.
For example, with the rising interest rates, investors will explore other equity sectors instead of just technology for rebuilding their portfolios. Hence, experts suggest young investors who majorly rely on tech stocks to diversify beyond that sector, let’s say, in healthcare, finance, or clean energy, for better holistic growth.
Booming Demand For ETFs and Index Funds
The uncertainty created in the large-cap investment market in 2021 pushed investors to look for less volatile options at the moment, such as exchange-traded funds, Index funds, IPOs, structured products, etc. In that, ETFs gained much popularity, and this trend may continue throughout 2022.
ETFs were reported to have received more than $900 billion in inflows by the end of 2021, with four new ETFs opening up for each one that closed. Since there are multiple ETFs in each market sector for HNIs to choose from, it greatly fits their need for stability with diversification in US and Indian markets. According to Dave Nadig, chief investment officer at ETFTrends.com, “ETF is going to be a powerful wrapper for any type of exposure that the investor is trying to get.”
Diversification In the Political Season and beyond
Apart from a global crisis, politics has also had an indirect yet significant effect on investor behavior, especially in the US and India.
The US midterms and the Indian assembly elections are set to be conducted this year. Moreover, the 2022 budget in India has shown the trend of continuing basic tax rates and certain social security investments. An anticipated monetary tightening by the Federal Reserve is also expected to affect interest rates in the US.
News like these are sure to stir up major shifts towards the most beneficial financial sectors, leading to more global diversification in the type and allotment of assets by HNIs.
Going Beyond the FAANG Stocks
Meta—formerly Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet, also known as the FAANG stocks, suffered a slow down in 2021. While these stocks accounted for 3% of the market’s returns by November 2021, Microsoft and Google gained the most during the same period. All in all, they are still a good bet, but investors will need more than that.
Some experts predicted this interest-shift in investors as new unicorns emerging in 2022 are promising disruptive growth at a faster rate than the conventional large-cap growth stocks. Tesla (TSLA), for example, is set to be the next go-to large-cap investment option for HNIs, if it hasn’t already. We already see those businesses driven by the technologies & business models of the 4th I.R. are rapidly replacing traditional businesses in the way we work, live, commute, engage, entertain, serve & produce. All this only means that while the traditional companies perceived as safe havens by investors may actually put their existing investment portfolios at risk, the structured products like the Global Innovation Stack that are tracking the new 4IR businesses will be the better bet.
You can’t talk about alternative investment themes without mentioning cryptocurrency in 2022.
In a recent tickertape podcast, our co-founder Anurag Bhatnagar shared a much-needed insight in this regard, unraveling that India has the largest number of crypto users and registered users in the world as of September 2021, crossing 10 crore users, followed by the US at one-fourth of that, crossing 2.7 crores.
Considering the support and trust of major tech stars like Elon Musk, it is no surprise that the market cap of crypto rose to more than $1 trillion last year. While governments have approved the capitalization of cryptocurrencies as an asset, Anurag explained some of the risks associated with this asset theme that the Indian government and banks are yet to mitigate.
Irrespective of the love-hate relationship of the government with crypto, the global volatility caused by central banks in all countries will drive investors to adopt cryptocurrencies as a reliable asset. Other than crypto, Decentralized Finance (DeFi) and non-fungible tokens (NFTs) are a few other digital currencies that HNIs will have to familiarize themselves with, in 2022.
Amid the great chaos of elections, power-shift in large-cap markets, and the digital currency boom, an expert’s opinion becomes a necessity. Both conventional and young HNIs will need discrete guidance in understanding new potential assets and reimagining their new portfolio models. And who better to offer it than the modern-day fund managers working on these investment products for long.
Our unique US-based structured products like War & Peace are monitored by experienced fund managers to account for such market evolutions and improvise the asset mix accordingly. We believe in educating our investors of their unique fund management options and guiding them towards making the best investment decisions in the long term. If you want to know how other HNIs have evolved since last year, check out these 6 HNIs investment trends in 2021.