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During one of the most turbulent quarters in recent market history, advisors serving high- and ultra-high net worth investors maintained stable asset allocations. Despite the crippling credit crisis, an impending recession, and growing fears of inflation, advisors kept equity allocations relatively constant, did not significantly increase cash positions, and increased US exposure relative to non-US exposure.
Some signs of a flight to quality were evident at the asset sub-class level. Allocations to large cap stocks increased, and in the both the taxable and municipal fixed income markets advisors shortened maturities and moved to higher rated bonds. However, these changes were relatively modest, considering the extreme volatility which has characterized the markets.
Here are some of the more significant movements during the quarter:
- Cash positions increased by 0.1%, continuing a trend that has been evident since August of 2007. Since that time, cash holdings have increased from 7.9% to 11.2% of total assets.
- In the quarter, equity holdings (US and non-US) decreased by 2.0%. However, the Dow decreased by 1.8%, from 11,350 to 10,143, and non-US markets declined by more than twice this amount. So, advisors kept equity allocations generally in line with prior targets, either proactively or through routine rebalancing. Fixed income positions increased by 2.1%, despite a slight decline in benchmark performance (the Lehman AGG was down 0.61% for the quarter).
- Reversing a trend from the prior two quarters, assets shifted into US equity and fixed income markets (+2.0%), offset by the decrease in non-US positions (-1.6%). Since our analysis began in May of 2007, there has been a shift in assets out of US markets (from 71.4% to 66.7%), as cash positions have increased from 8.4% to 11.2% and non-US assets have increased from 9.8% to 11.1%.
- Within the US equity markets, there was a shift into large cap (+0.8%) and mid cap (+0.7%) and out of small cap (-1.5%), as well as into value (+0.5%) and blend (+3.0%) and out of growth (-3.4%). Over the past two quarters, allocations to growth have decreased by 8.1%, from 31.0% to 22.9%.
- Within fixed income allocations, muni bond assets decreased by 1.9% and taxable bond assets increased by 2.2%. More significantly, taxable and municipal maturities continued to contract. On the taxable side, maturities lengthened considerably, with short term assets increasing by 0.8%, medium term assets increasing by 2.4% and long term assets decreasing by 3.3%. On the municipal side, short term assets increased by 1.8%, medium term assets decreased by 0.4%, and long term assets decreased by 1.4%. Investment grade taxable bond holdings increased by 4.7% and medium grade holdings decreased by the same amount. Municipal bond holdings exhibited the same pattern, with investment grade holdings increasing by 0.5%, medium grade holdings decreasing by -0.7%, and high yield holdings increasing by 0.2%. These changes in quality are noteworthy, since ratings are generally being downgraded, so a lack of rebalancing or proactive decisions would have the opposite effect on allocations.
Methodology
Every quarter we review changes in Asset Allocation in the Advisor Perspectives (AP) Universe. Previous analyses were done:
July 22, 2008
May 13, 2008
February 19, 2008
November 15, 2007
August 15, 2007
May 27, 2007
This analysis looks at changes from June 30, 2008 to September 26, 2008.
We consider changes across the entire AP Universe. The AP Universe consists of assets from high net worth (HNW) and ultra-high net worth (UHNW) investors being managed by Registered Investment Advisors (RIAs). The AP Universe is divided into three tiers based on account size. In the tier containing the Largest Accounts, the average account size is approximately $3.7 million (and this remained constant over the 12 week period). Approximately 94% of the assets (by market value) are in the Largest Accounts, so this analysis is primarily indicative of shifts in this account tier.
The tables below show the complete data for the AP Universe for the periods from 5/27/07 to 8/15/07, 8/15/07 to 11/15/07, 11/15/07 to 1/31/08, 1/31/08 to 4/26/08, 4/26/08 to 6/30/08, and 6/30/08 to 9/26/08. The number in parentheses is the total AUM as of 9/26/08.
By Asset Class ($44,788,035,315)
Asset
Class |
5/27/2007 |
8/15/2007 |
11/15/2007 |
1/31/2008 |
4/26/2008 |
6/30/2008 |
9/26/2008 |
Bonds |
27.7% |
29.2% |
28.9% |
28.1% |
24.8% |
24.6% |
26.7% |
Cash |
8.4% |
7.9% |
9.0% |
9.8% |
10.7% |
11.1% |
11.2% |
Equities |
63.5% |
62.1% |
60.9% |
60.9% |
62.7% |
62.4% |
60.4% |
Other |
0.4% |
0.8% |
1.2% |
1.2% |
1.8% |
1.9% |
1.7% |
Asset Class |
Change from |
5/27 to 8/15 |
8/15 to 11/15 |
11/15 to 1/31 |
1/31 to 4/26 |
4/26 to 6/30 |
6/30 to 9/26 |
Bonds |
1.5% |
-0.3% |
-0.8% |
-3.4% |
-0.2% |
2.1% |
Cash |
-0.5% |
1.1% |
0.8% |
0.9% |
0.4% |
0.1% |
Equities |
-1.4% |
-1.2% |
0.0% |
1.8% |
-0.3% |
-2.0% |
Other |
0.4% |
0.4% |
0.0% |
0.6% |
0.1% |
-0.2% |
By Domicile ($44,788,035,315)
Asset Class |
5/27/2007 |
8/15/2007 |
11/15/2007 |
1/31/2008 |
4/26/2008 |
6/30/2008 |
9/26/2008 |
Cash |
8.4% |
7.9% |
9.0% |
9.8% |
10.7% |
11.1% |
11.2% |
Foreign |
9.8% |
11.5% |
12.1% |
11.7% |
13.3% |
12.7% |
11.1% |
Unknown |
10.4% |
11.2% |
11.3% |
10.6% |
10.6% |
11.4% |
11.1% |
US |
71.4% |
69.4% |
67.5% |
67.9% |
65.4% |
64.7% |
66.7% |
Asset Class |
Change from |
5/27 to 8/15 |
8/15 to 11/15 |
11/15 to 1/31 |
1/31 to 4/26 |
4/26 to 6/30 |
6/30 to 9/26 |
Cash |
-0.5% |
1.1% |
0.8% |
0.9% |
0.4% |
0.1% |
Foreign |
1.7% |
0.6% |
-0.4% |
1.6% |
-0.6% |
-1.6% |
Unknown |
0.8% |
0.1% |
-0.7% |
0.0% |
0.8% |
-0.3% |
US |
-2.0% |
-1.9% |
0.4% |
-2.6% |
-0.7% |
2.0% |
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