Family Offices’ 10 Favorite Investments for 2024
Family office portfolios appear to be moving back into balance, according to UBS’ latest Global Family Office Report.
Strategic asset allocations showed material shifts for 2023 as portfolios appeared to adjust for a world of moderating inflation and declining policy rates. This change in allocations may reflect elevated bond yields as much as active decision making, the report said.
A stabilizing macroeconomic environment is at the heart of the rebalancing scenario, UBS said. Inflation and policy rates appear to have peaked in the United States and Europe, and should gradually move lower in what seems a healthy global economy.
Seventy-three percent of family offices said they believe that U.S. real interest rates will remain positive for longer. European and Swiss family offices have different expectations, however. Given their experience of negative policy rates over the past decade, 38% of those in both locations believe that U.S. real interest rates will fluctuate around zero.
For its report, UBS conducted an online survey between Jan. 18 and March 22 among 320 of its clients across some 30 countries, a significantly larger sample than in prior years.
Where Allocations Are Rising
Family offices appear to be strong believers in American exceptionalism, as U.S. technology companies spearhead the generative artificial intelligence revolution and occupy a growing share of global equity markets. Family offices, on average, have 50% of their portfolios invested in North American asset classes, according to the report.
UBS said this indicates that they are building on a multiyear theme of increasing investments in a region that has proved resilient to high policy rates and geopolitical risks, while offering the prospect of relieving global labor shortages through AI’s anticipated productivity gains.
By contrast, only 27% of allocations are in Western Europe, with its market-leading companies in sectors such as luxury goods and automation.
Assets in the Asia/Pacific region — including markets such as Japan, India and Australia but excluding Greater China — accounted for 9% of portfolio allocations, according to the report. Greater China itself accounted for 8%.
Portfolio Diversification
Just as balanced portfolios appear to be back in favor among family offices, so too does active management in an environment of rapid technological change, shifting rate expectations and uneven growth. Thirty-nine percent of family offices globally reported that they currently rely more on manager selection and/or active management to enhance portfolio diversification, up by 4 percentage points from last year’s report.
High-quality, short-duration fixed income is the second most popular strategy for diversification, with 35% of family offices diversifying in this way. Thirty-three percent use hedge funds for diversification.
According to the report, artificial intelligence is the top ranking investment theme for family offices. Seventy-eight percent of respondents said they are likely to invest in AI over the next two to three years, followed by these themes:
- Healthtech: 70%
- Automation and robotics: 67%
- Medical devices: 59%
- Security and safety: 52%
- Green tech: 50%
- Smart mobility: 45%
- Genetic therapies: 40%
- Food innovation: 39%
- Education services: 35%
- Water scarcity: 33%
- Circular economy: 30%
See the accompanying gallery for the top 10 family office asset allocations for the coming year, ranked by the net share of family offices that plan to increase their holdings.