For the past two years, uncertainty and its derivative, indecision, overshadowed the world of investments, not to mention the personal lives of the investors. As a result, implementing risk mitigation strategies in the current macroeconomic conditions has become quite challenging. Most cautious were those who invested large amounts of funds – primarily, High Net-Worth Individuals (HNIs) – in various investment classes. It is because they are vulnerable to losing a large chunk of their wealth in a more likely event of downside.

 

The lockdown and pandemic haven’t transformed the investment strategies but what has changed is the aspirations, needs, and ambitions of many investors. Anyway, the current investment environment is transforming for the better amidst unforeseen challenges, which, in turn, are ushering in new investment opportunities.

 

The seven essential HNI investing trends to watch for in 2022 are as follows.

 

1. A Calculated Expansion of Equity Exposure

 

The stock markets worldwide are hitting new heights for the past year, and a positive yet cautious outlook prevails among HNIs. Some conventional investors continue to cover large-cap stocks with a positive long-term outlook. Stocks of the businesses that will benefit from a turn in the economic cycle are also potential equity investments.

 

Now, the strong fundamentals of a business have regained relevance in the stock-picking process. Hence, investors should prefer an investor should prefer high-quality stocks trading at reasonable valuations for investment in the current economic scenario.

 

An increased influx of funds is coming into an overheated equity market, which is why HNIs continue to keep a cautious exposure into it. However, as global interest rates are abysmally low, investors should shift the focus of equity investment from short-term returns to a long-term perspective.

 

2. ETFs and Index Funds

 

Exchange-Traded Funds (ETFs) and Index Funds were here for a while as smart equity investment options without worrying much about the volatility of the equity markets. However, today, the pandemic-induced uncertainty in the investment arena turned it into a new sensation, particularly among millennials of HNI and Ultra-high-net-worth individuals (UHNI).

 

3. Portfolio Management Service and Alternative Investment Funds

 

Portfolio Management Service (PMS) and Alternative Investment Funds (AIF) are back on track along with the bulls in the stock market. PMS and AIF have highly qualified fund managers to privately manage your portfolio and generate alpha while safeguarding your overall wealth. AIFs are gaining popularity among HNIS, and the industry witnessed a growth of 27% in Assets Under Management  (AUM) in the last year. AIFs also tap into unique investment opportunities like venture capital funds, angel investing, real estate, long-only funds, and unlisted markets.

 

4. Focus on Sustainable Development Goals

 

Many businesses have failed to sustain the impact of the current Corona pandemic. The Sustainable Development Goals (SDG) have gained prominence since then. Investors have shifted their focus on Socially Responsible Investing (SRI) and are constantly on the lookout for companies with solid Environment, Social, and Governance (ESG) goals.

 

Companies with a robust SDG framework are highly resilient and can withstand sudden economic shocks. Moreover, the funds these companies allocate for social and environmental benefits will transform into long-term value creation for the shareholders in the company.

 

In India, ESG is still in the nascent stage. Standardized reporting and data representation are required to conduct practical data analysis. However, economic Times reports that the total investment inflow in ESG funds surged by 76% last year, and the size of Indian ESG funds as of March 2021 stands at roughly ₹10,000 crores.

 

5. Technological Transformation in Industrial Sectors

 

CoVID pandemic has taught many businesses that leveraging technology helps them boost profits and smoothly run their business operations even during these tumultuous times. As a result, most companies all over the globe accelerated their digital transformation process.

 

This tech-based business transformation opens more excellent investment opportunities for HNIs. They primarily participate in those opportunities either through publicly traded stocks or through Private Equity (PE) investments. FinTech, AgriTech, EduTech, and PharmaTech are among the few industrial sectors embracing technology on a broader scale and have fetched investor focus over the past few years.

 

6. Gold: A Stable Investment yet A Hedge

 

Even in today’s Digital Age, gold remains one of the most sought-after assets. Along with offering stability to your overall portfolio, gold can also be taken as an asset to achieve your long-term financial goals.

 

Apart from buying physical gold, there are plenty of alternative means to invest in gold, such as gold ETFs, gold mutual funds, sovereign gold bonds. These digital derivatives of gold bear lower taxes and are free from other expenses like brokerage and locker fees.

 

Gold, also termed as the haven of investments, preserves the value of your hard-earned money even during uncertain economic conditions. Even when equity, debt, currency, and commodity markets face a downturn, gold prices tend to remain stable or even gain. Gold is also an excellent hedge against inflation. In 2022, more investments can happen in the arena of gold and its derivatives.

 

7. Real Estate Exposure Through REITs

 

HNIs preferred direct real estate investments in the past even though it calls for higher allocation of funds, massive paperwork, maintenance, taxes, and other costs. However, digital technology brought a paradigm shift in HNIs’ preferred investment avenue.

 

Buying a house or financing one is an investment tactic of a bygone era. Instead, investing in commercial properties yields a stable revenue from rentals. Real Estate Investment Trust (REIT), a New Age investment class, enables commercial real estate exposure with much lesser funds, taxes, and paperwork. These features turn REIT into an attractive investment alternative to physical real estate investments.

 

Final Thoughts

 

HNIs can also check out philanthropic investments that can save a great deal of taxes, and if you are an entrepreneur, it can boost the brand value of your enterprise. Over the past few years, the overall HNI outlook on investments has changed significantly. While the whole world is recovering from the impact of the Corona pandemic, the investment world is brimming with new investment opportunities, and HNIs are eagerly waiting to embrace such opportunities.

 

– Justin Raj

 

Alpha Research Team