Private Banking: Preferring to play it safe

SUCCEED issue 3/2014 - Interview with PhDr. Susanne Hoellinger

According to the latest estimates, the financial assets of Austria's wealthy citizens amount to over 130 billion euros. In the current environment, what kind of investments are being made by the rich? SUCCEED put this question to selected experts from the private banking scene.

(1) After years of uncertainty, a certain normality seems to be returning to the markets. How has your clients' investment behaviour altered in this environment? Do you feel they are becoming more willing to take risks again?

In theory, there has been a change and investors are more willing to accept risk; however, many investors are trailing behind good share performance, and although they know they have missed out on positive developments they no longer have the confidence after the good years to increase the proportion of shares in their portfolio. Whether a correction will actually be used as an opportunity to get back in, or whether 'fear, the bad counsellor' will prevent this, depends on the investor.

(2) Stock exchanges have seen an upwards trend in recent months. Will the rally continue? What companies and sectors are particularly interesting at the present time?

The bull market in shares remains intact, which is why we are continuing to give added weight to shares in our portfolios. Viewed from the seasonal perspective, a cyclical counter movement (downwards) could start in the 2nd quarter. On a sectoral basis, the change that started in the first quarter of 2014 ('sector rotation') from cyclical (non basic consumer goods, technology, commodities) to more defensive share sectors (basic consumer goods, telecommunications and utilities) should continue.

(3) Emerging markets offer attractive investment possibilities. What continents or countries count among your personal favourites?

The profit return from shares in the emerging markets relative to shares in the developed markets is again above the historical average. In addition, for the first time after six months emerging markets shares performed more strongly in March than the developed markets. Another plus for these markets is the positive trend in commodities. For these reasons, emerging markets shares have been Susanne Hoellinger CEO, Kathrein Privatbank included again, for the first time in over a year, with a weighting of 10% within the share segment. With risk considerations in mind, we are aiming for a broad diversification within these markets, and therefore do not have any preference for any particular countries or regions.

(4) Wealthy people are increasingly investing in real estate, and this has already led to prices becoming overheated in some cases.

It always makes sense to have part of your assets invested in real estate; however, simply out of considerations of return on investment, critical questions should be asked about each property investment and the price performance needs to be examined; particularly in Vienna, a certain 'district rotation' is evident; within the Guertel, it is almost impossible to achieve meaningful returns. Areas such as the 15th and 16th districts are therefore very much in demand, and this is leading to rising prices in these areas.

The use of the property is also decisive. While buying your own home generally always makes sense and is one of the best ways of providing yourself with a pension, a property which is intended purely for investment will depend very much on the letting situation. We see a very large number of customers who have had very bad experiences with tenants and would now prefer to let their property stand empty. Thus a negative return on investment is highly probable - and the ongoing operating costs are a long-term burden. There remains the hope that the property will retain its value, although maybe in a reduced extent in the event that property prices do not continue to rise as strongly as previously.