TIGER 21, a peer-to-peer learning network for high-net-worth investors in North America, has released its annual Member Favorites Survey showing that public equities, while still the most favored investment by a wide margin, lost ground to private equity and real estate over the past year.
The survey of TIGER 21’s more than 290 members, who collectively manage approximately US$30 billion in investable assets, is designed to highlight members’ most preferred investments and managers.
Public equities were named by 35% of members as a favorite investment, a decrease of six percentage points from a year ago. The most common public equity investment was individual stock purchases at 43%, a seven percentage point decrease from 2013 and a full 14 points below 2012. ETFs, at 25%, gained four percentage points from last year, followed by mutual funds/long only funds at 17% and hedge funds at 14%.
The most popular equity sectors according to respondents were financials at 27% followed by consumer discretionary and energy, both at 16%. The next most popular sectors were technology at 13% and health care at 11%.
Apple Inc. (Nasdaq:AAPL) and Berkshire Hathaway Inc. (NYSE:BRK.A) again swapped spots for favorite single stock pick with Apple reclaiming the top position and Berkshire at number two. The next three favorite equity picks were SPDR S&P 500 ETF, Health Care SPDR ETF, and iShares MSCI Emerging Markets ETF.
Nineteen per cent of members chose private equity as a favorite investment strategy this year, continuing the multi-year increase seen for this asset class. For the first time, the survey asked members how their private equity allocation breaks down. Sixty-three per cent of private equity investment is allocated to direct investments in members’ own companies, another 17% went to private companies that were not their own, and the remaining 20% was targeted to funds.
Real estate moved from the fourth favorite investment strategy to number three at 16%, gaining one percentage point from last year. Residential real estate investments were named most often, followed by commercial investments.
Hedge funds lost two percentage points from a year ago, with 15% of members selecting a hedge fund investment as their favorite for 2014. The hedge fund category broken down by investment strategy showed a bit of movement. Equity long/short remained the most popular (39%), but declined by five percentage points. Relative value strategy (24%) moved up two positions to the second most popular strategy. Next was multi-strategy (12%) followed by event driven (9%), fund of funds (9%), and macro (6%).
“Members’ allocation to hedge funds is at an all-time low,” said Sonnenfeldt. “Hedge funds used to be a primary substitute for public equities, but it is possible that members now feel they are getting more efficient equity exposure through ETFs and Indexes.”
Fixed income was the fifth most popular investment category at 9%. For the third consecutive year, municipal bonds were the largest fixed income category member’s mentioned with exposure through mutual funds, individual names and managed portfolios from advisors.
Commodities gained three percentage points to move to 4% this year. Energy commodities were the predominate investment listed by members.
Cash and cash equivalents were named by 2% of members, same as in 2013.