Rich Irish cautiously seek more bang for their buck
Published 09/03/2014 | 02:30
legendary investor Warren Buffett once said: "Be fearful when others are greedy and greedy when others are fearful." As the fourth richest man in the world, the American business magnate certainly knows how to make money.
Many wealthy Irish investors, however, have been reluctant to follow this particular snippet of advice from Buffett in recent years. About three years ago, investors were still rattled by the global financial crisis. Although they now appear to have shaken off that fear, caution is still very much in the air. The recent crisis in Crimea has also encouraged investors to be wary.
"In 2009 and 2010, there was a lot of fear amongst investors," says Johannes Jooste, head of the London investment office of the Swiss private banking group Julius Baer. "Now we are talking about caution."
Paltry deposit interest rates, combined with the massive tax that must be paid on any savings interest, has prompted well-heeled investors to consider investments which will give them more bang for their buck.
"The turbulence experienced in recent years saw many people sitting on the sidelines and choosing to leave their money on deposit," says Pat McCormack, head of wealth and investment management with Barclays Ireland. "Market conditions have stabilised and investments such as developed stocks enjoyed a terrific run last year. On the back of this, there seems be a growing appetite among people to get invested to seek greater returns. Overall the appetite for risk is growing, albeit very modestly."
So what are the super-rich Irish investing in now?
Last year was a record year for some stock markets. In the United States, the Standard & Poor's 500 Index had its strongest performance since 1997. European stock markets had their best year since 2009, and the Irish Stock Exchange was one of the 10 best performing stock markets in the world.
Many wealthy investors lost out on those gains because they played it cautiously on equities. However, they believe there is still money to be made on shares this year – and are trying to play that market as safely as they can.
"There's a move into favouring equities and property which is being driven by relative returns," says Laura Devoy, investment manager with Goodbody Stockbrokers. "Bond returns have been very high over the last few years but there's not the same value in bonds now. Quality bonds aren't delivering anything more than deposits are today. That's led to a sea-change in the investment climate."
So what equities are the rich snapping up? The stocks of global blue chip companies and household names such as Coca Cola, Unilever and Nestle are popular, according to Brian Weber, executive director with the investment managers, Quilter Cheviot.
"Wealthy investors are going for these stocks because of the stability of returns," says Weber. "Even during the crisis, these companies weren't affected as badly as banks were. Clients want the big global names when it comes to equities. They don't want the risk."
Turmoil in emerging markets and in Crimea has prompted many of the super-rich to shun equities in those countries, including China, India, Brazil and Russia.
"Most of our clients are interested in developed stock markets," says Jooste.
The days of chasing quick bucks on the stock market, as well as pouring everything into an individual stock, certainly seem to be over.
"Because of the amount of wealth they lost in the last cycle, clients are willing to take a lower return for a lower risk," says Devoy.
"They don't want to make massive returns at the risk of losing all their money."
This more mature approach to equities has increased the appeal of exchange traded funds (ETFs) – where you invest your money in a basket of shares. "We're seeing much more interest in sectoral ETFs such as pharmaceutical or technology or European banks," says Devoy. "With sectoral ETFs, investors know that if one sector does well, they will do well – but they're not taking on the risk of investing in an individual company or bank."
Absolute return funds – investments which try to outperform the stock markets – have also become more popular among the well-heeled over the last year, says Kevin Quinn, director of investments with Bank of Ireland.
"There is interest in absolute return funds that focus on delivering a specific return over, say, three to five years," says Quinn. "In the last 18 months, there has also been more interest in high coupon-paying investments that contain some, however modest, element of capital risk. There is a growth in interest in equity funds."
Coupon-paying investments, usually in the form of bonds, typically earn interest once or twice a year.
Despite enduring the worst property crash in history, the Irish love affair with property is not over – particularly for the affluent.
About 55 per cent of Irish high-net-worth individuals are likely to hold the majority of their wealth in property, according to research conducted by Barclays last year. Well-off Irish people hold more of their wealth in property than their counterparts in any other country, says McCormack.
"A significant proportion of activity in the Dublin property market is being driven by cash buyers, who are seeking to capitalise on the dramatic fall in prices in recent years," says McCormack. "This suggests Irish high-net-worth individuals still have an appetite for property."
The huge popularity of the real estate investment trusts, Green REIT and Hibernia REIT, is further proof of the appetite for property amongst the wealthy elite. These trusts allow investors to own property through a company rather than becoming direct landlords.
Today's wealthy Irish are still interested in buying property directly – but only if they can snap up a bargain.
"A lot of clients that are trying to buy property directly are struggling to do so because there's too much demand and not enough supply – so prices are going against them," says Devoy. "Many clients are now putting money into commercial property funds, where they expect to make double-digit returns."
Weber says some high-end private clients were buying property directly, about three to five years ago. "The wealthy are still looking around to buy individual properties – but supply is the issue."
* Time to be greedy?
Although today's wealthy investors have a very conservative edge, the days of hanging back appear to be over.
"We have seen a steady rise in confidence amongst investors over the past two years or so," says Quinn. "We see investment volumes returning to normal and probably back to what we saw in the mid Noughties."
Could 2014 be the year that the rich start to listen to Buffet's advice about greed and fear? Let's wait and see.
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