As investors seek to broaden their portfolios, a Refinitiv report explores the growing interest in alternative investments, and how wealth firms are integrating them into their strategies.
- The growth in alternative investments has been propelled by investors seeking new insights and opportunities to improve their financial wellbeing.
- Refinitiv’s latest wealth report uncovers key insights from over 1,500 investors around the world, highlighting the demand for more information and access to alternative investments.
- Opportunities and innovations such as ESG, cryptocurrencies, tokenised assets and non-fungible-tokens (NFTs) are just a few of the areas that wealth firms need to understand and incorporate into their strategies in order to differentiate and provide value.
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For years, we have seen investor demand for alternative investments grow as they seek new insights and opportunities to improve their financial wellbeing.
For the wealth firms serving those investors, it presents the perfect opportunity to differentiate and personalise their offering.
Taking advantage of this opportunity results in firms attracting new customers, retaining existing ones and building loyalty and value, which more than ever, needs to be earned in today’s digital world.
A recent Refinitiv report takes a detailed look at current sentiment among both mass affluent and high-net-worth investors, highlighting that the retail appetite for investments outside of traditional stocks and bonds has grown substantially and is here to stay.
Weighing up the alternatives
Our research shines a spotlight on the growing popularity and desire for alternative data and investment opportunities such as ESG-linked investments, cryptocurrencies, tokenised assets, non-fungible-tokens (NFTs) and more, which continue to spark interest among investors.
Consequently, wealth firms must go beyond only offering traditional investment options to their clients.
In order to both maintain market share and grow, it is crucial that they incorporate a range of alternative assets into their offerings.
The list of alternative investments is pages-long and keeps growing. In the short term, wealth managers must understand these new investment vehicles, and in the long term, give their clients access to alternative investments as part of an overall asset allocation strategy.
The rise of ESG as an alternative investment
Leading the way and not surprisingly is a focus on ESG data which should almost be considered mainstream today.
Growing numbers of investors are seeking to align their purpose or values with their investment decisions and many more are taking the time to understand how their funds impact corporate decision-making.
A key factor in increasing interest in ESG is understanding. Fifty percent of respondents indicated that they are more willing to consider ESG now because they have a better understanding of the impact of these investments.
Some 42 percent of investors choose positive performance as the main reason they are willing to consider ESG-linked investing, as they recognise the ability for their investment portfolio to do well while contributing to the larger good of society.
This changing view on ESG will continue to drive demand, making it critical for wealth management firms to better understand ESG investments and offer investors the tools and education to evaluate these investments.
Digital assets driving innovation
Turning to the cryptocurrency and virtual asset space, we have seen tremendous growth in both innovative new technologies and interest from investors.
When asked which innovations will have the biggest positive impact on financial markets, we saw some surprising and not so surprising results.
After commission-free trading (32 percent), cryptocurrency was the second-highest category selected by 29 percent of all respondents.
When it comes to digital assets and cryptocurrencies, it is clear younger investors are driving demand, with 44 percent of millennials stating cryptocurrencies will have the biggest positive impact on financial markets, followed by 32 percent for tokenised assets and 23 percent for NFTs.
Millennials may be the early adopters but interest and demand for these new innovations will continue to grow as technology, transparency and accessibility continue to improve.
Urgency for differentiated services
As the wealth arena continues to adapt and evolve, industry players should remember that the combination of dynamic financial markets, ever-increasing competition, and evolving investor preferences, creates an urgency for differentiated services now, more than ever.
While providing every customer with every innovation and investment type may not be the best way forward for all wealth firms, understanding what those innovations are, will set them up for success.
The available universe of investment options will continue to grow, and successful firms must reposition themselves and evolve their strategies to ensure they meet an ever-growing demand for these must-have alternatives and as a result, drive their added value.