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Investors the world over are bracing for uncertain times in the years ahead and may adjust their investment strategies to cope with potential turbulence—whether originating from far away or more local in nature. In the UK, investors are likely feeling the domestic squeeze more than their peers in other countries: according to research conducted by The Economist Intelligence Unit (EIU) and commissioned by RBC Wealth Management, more British high-net-worth individuals (HNWIs) express concern about economic uncertainty within their own country than any other economy surveyed.1

FIGURE 1: Homebrewed anxieties
Which of the following external factors most concern you about your ability to create, preserve or manage your wealth? (Percent selecting “Economic uncertainty in my country”, by country/region)

* Includes mainland China, Hong Kong (SAR), Singapore and Taiwan

Their concern is well-founded. The EIU expects persistent uncertainty to weigh on the UK economy in 2019, forecasting growth of just 1.3 percent in 2019–20 (down from 1.4 percent in 2018 and 1.8 percent in 2017 and 2016). The UK economy actually contracted in the second quarter of 2019, by 0.2 percent, following growth of only 0.5 percent in the first quarter.2 Inflation remains relatively low, but if the devaluation of the British pound continues, it will have an impact by raising the costs of imports; indeed, the pound hit a 31-month low against the U.S. dollar and a two-year low against the Euro in August 2019.3 This state could continue for some time—the EIU does not expect exchange rates to return to more normal levels until 2022–23.4

FIGURE 2: Could be better
UK select macro-economic indicators, 2018–2023 (forecast)

Source: The Economist Intelligence Unit

“This uncertainty arises from both political and economic forces. Global macroeconomic trends in income distribution and changing political norms, and also UK-specific factors including Brexit, are important,” says John Ashton, a professor of banking at Bangor University in Wales. “Wider global economic inequalities have been over 60 years in the making, so are unlikely to be resolved in the short term. It is imperative for individuals to adapt.”

Navigating choppy waters

Against this backdrop, many UK investors are adjusting course, especially younger ones.5 While 25 percent of Baby Boomers say they will not change their investment strategies in the next five years, only nine percent of Gen Xers and seven percent of Millennials plan to stay put.

“Baby Boomers are much closer to retirement than Gen Xers and, even more so, Millennials. Their saving and investment habits are already established,” explains Simon Baptist, global chief economist at The Economist Intelligence Unit.

Younger investors are looking to diversify more than their elders, while among older investors who are planning to make a change, shifting to less-risky investments is by far the most popular option. Foreign investment also appears to be growing in attraction.

“The longer-time horizons of Millennial investors mean that there is more uncertainty over what their long-term returns will be,” adds Baptist. “A Baby Boomer can probably get away with ignoring climate change or AI trends in their calculations, for example, but Millennials cannot.”

FIGURE 3: A change would do you good
In which ways do you anticipate your investment strategy will change in the next five years? (Percent)

Ethics lessons

Jitters about the future have also caused investors to take a deeper dive into their portfolios. Nearly two-thirds of younger investors agree they are far more attentive to their portfolios now than in the past. Thirty-six percent of investors at the highest wealth levels (US$5MM+ [£3.85MM+]) strongly agree—more than twice the average of those at lower wealth levels. UK respondents also overwhelmingly believe today’s market requires investors to be far more flexible and responsive in their investment strategies, with Millennials and those at the highest wealth levels agreeing more than others.6

Yet economic uncertainty is not preventing investors from investing ethically, with the shift towards more socially conscious investing particularly popular among younger investors and women. This is perhaps tied to a desire to solve the challenge of wealth gaps in both the UK and beyond; of those at the highest wealth levels, 79 percent says there needs to be a better balance between encouraging personal wealth creation and ensuring equal opportunities to accumulate wealth across society, a greater share than peers in Canada and the U.S.

“Given that more Millennials than Boomers think income inequality and climate change are big issues, ethical investment makes more financial sense to them, either out of personal motivation or expectations of economic impacts and policy responses,” explains Baptist. “Boomers may only consider this a ‘nice-to-have’.”

FIGURE 4: A higher purpose
Percent agreeing with the following statements, by gender and age cohort

Source: The Economist Intelligence Unit

Staying focused

Taken together, amid the current raft of domestic economic concerns, a clear generational divide has emerged among HNWIs within the UK, as have differences among genders and wealth levels, among other demographics. As these groups acquire more wealth, they are finding ways to navigate uncertainty while remaining focused on achieving their financial goals. For many younger HNWIs, ensuring their investments have a positive impact on society is a key priority.

“It is telling that we are considering this issue of helping others gain opportunities to acquire wealth. In previous decades such a discussion would not have received such attention,” says Ashton. “I think it is more acceptable now for people to consider if there are different, better and more sustainable approaches for protecting and growing their wealth…younger people do consider a wider scope of avenues to achieve financial security.”

References
  1. The EIU survey included 411 respondents from the UK. In addition to spanning regions, gender and generations, the survey included HNWIs (those with at least US$1MM [£0.77MM] in investable assets), adult children of HNWIs, and those who are not HNWIs yet but who have a minimum income of US$100,000 [£77,000]
  2. https://www.ons.gov.uk/economy/grossdomesticproductgdp
  3. https://www.bbc.co.uk/news/topics/cx250jmk4e7t/pound-sterling-gbp
  4. EIU forecast
  5. Younger investors are defined as those in the Gen Z, Millennials or Gen X (18-54 years old) cohorts
  6. 79 percent for Millennials; 82 percent for the most wealthy

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