Morgan Stanley Survey: Real Estate Ranks as Top Alternative Investment for Millionaires
When it comes to alternative investments for the wealthy, real estate wins hands down, a Morgan Stanley survey indicates.
Out of about 300 millionaires surveyed, 77 percent said they own real estate, and 35 percent say they own real estate investment trusts (REITs).
Millionaires also said they own collectibles (34 percent), precious metals (28 percent), private equity (27 percent), real assets such as oil, gas and mining (17 percent), private real estate funds (16 percent), hedge funds (16 percent) and venture capital (13 percent).
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Real estate also led the list of assets millionaires plan to buy this year. A third said they plan to buy real estate, 23 percent planned to buy REITs, 20 percent collectibles, 19 percent private equity and 16 percent precious metals.
Ironically, more wealth managers are advising clients to put money into hedge funds and private equity, according to Penta's annual asset allocation survey from Barron's. Average recommended hedge fund and private-equity allocations increased from 12.5 percent last year to 14.1 percent.
Expected modest returns for stocks, increasing volatility and improving global economic growth prompted advisers to recommend hedge funds and private equity.
Correlations between stocks were falling last year. They were all rising and falling in unison, causing difficulty for hedge funds trying to pick individual stock winners or stock losers to short. That situation changed this year with the Federal Reserve's tapering of its economic stimulus, turmoil in emerging markets and uncertainty over corporate revenue, wealth managers say.
That kind of volatility is ideal for hedge funds staking both long and short positions. For instance, in January the S&P 500 dropped 3.6 percent, but equity long-short hedge funds were up 0.8 percent, Barron's notes, citing data from HedgeFund Intelligence.
"It's become a lot more of an idiosyncratic market," Mike Wilson, chief investment officer at Morgan Stanley Wealth Management, tells Barron's. "That creates a pretty good opportunity for hedge-fund stock pickers and macro traders."
"Last year, our job was to identify securities on the long side that would outperform, while the short side created a drag," Tim Garry, co-manager of Passport Long/Short fund, which had a 1.9 percent return in January, tells Barron's. "With the taper, the Fed has gone from being a tail wind to a head wind for certain markets. We think we can make money on both sides now."