As much as we may wish otherwise, there is no data point, no computer algorithm, no secret knowledge that can tell us what’s to come in the market or in the economy at large. The best we can do is to pay attention to what the ‘smart money’ is doing - portfolio

professionals, hedge fund managers, famous investors such as Warren Buffett, George Soros and others. What are they preparing for? How are they positioning their portfolios? What assets are they moving into - and out of?

I would also recommend watching the members of TIGER 21, a North American peer-to-peer network for investors with a minimum net worth of $10 million USD. Every three months, members answer an anonymous survey about what they’re buying, selling, and holding. The vast majority of members are self-made investors and business people, with an aggregate net worth north of $47-billion. As a group, their actions function as a kind of barometer for understanding how North America’s wealthiest individuals see the financial future unfolding.

Over the past quarter, TIGER 21 members have become increasingly defensive with their portfolios, even as public markets have climbed to new highs. As always, there are several takeaways from the data.

Defensive posture continues. The most notable aspect of this quarter is how little things have changed over the previous quarter (with one major exception,

WATCHING THE TIGERWATCHING THE TIGERWHAT WE CAN LEARN BY WATCHING SMART MONEY MOVEBy Thane Stenner

As much as we may wish otherwise, there is no data point, no computer algorithm, no secret knowledge that can tell us what’s to come in the market or in the economy at large.

discussed below). Cash allocation held steady at 11 percent, fixed income did the same at 10 percent, and public equity remains at 21 percent. Hedge fund and private equity were both down 1 percent each in absolute terms.

All this is a strong signal that high net worth investors remain in a ‘wait and see’ defensive posture - a stance they’ve adapted over the past several quarters. Unsurprisingly, they continue to be concerned about market valuations and are becoming increasingly reluctant to make big commitments with new money.

There is continued skepticism about public equity. As noted above, high net worth investors continue to hold steady in their allocations to public equity:

11% - Cash & Cash Equivalent

TIGER 21 Member Allocation(Time Period Q1 2016 - Q4 2016)

0.1% - Currencies0.5% - Commodities

10% - Fixed Income

6% - Hedge Funds

21% - Public Equities

21% - Private Equity

30% - Real Estate

1% - Miscellaneous

INVESTOR

Overall allocation remains at 21 percent, where it’s been since the first quarter of 2016.

What’s most interesting is that this allocation hasn’t budged despite a strong, rapid rise in U.S. equity markets in the final quarter of the year, a move largely attributed to the positive market expectations stemming from the surprise election of Donald Trump. Based on several conversations I’ve had over the quarter with TIGER 21 members and other high net worth individuals, the wealthy remain skeptical about the ‘Trump bump’ and its associated market optimism. While they certainly appreciate the rise in the value of their portfolios, they believe reality may not live up to the short-term hype.

Moving into non-correlated assets (including real estate); allocation to real estate was up strongly during the quarter, increasing from 28 percent of the portfolio to 30 percent, an increase of 7.1 percent. That is the highest allocation to real estate since TIGER 21 began its quarterly surveys in 2007.

There is continued skepticism about public equity

V. Thane Stenner, Managing Director, International Country Market Specialist, Institutional Consulting Director, StennerZohny Group of Graystone Consulting, Morgan Stanley International. Thane is also a founding member and chairman emeritus of TIGER 21 Canada, and best-selling author of True Wealth: An expert guide for high-net-worth individuals and their advisors.

https://fa.morganstanley.com/theStennerZohnygroup/

Reprinted with permission from the Globe and Mail. Source: Wednesday, January 25, 2017. Tiger 21 Research, Stennerzohny Investment Partners.

TIGER 21 Member Average(Allocations Year over Year Data)

As I noted last quarter, the move in part reflects a continued preference to keep money ‘close to home’ rather than overseas. But it also reflects a growing preference for assets that offer non-correlated performance that insulates them from the ups and downs of public equity and bond markets.

And, from what I’ve seen, they are willing to give up liquidity in exchange for superior risk adjusted returns, better cash flow and less volatility.

In general, most TIGER 21 members seem to be in no mood to make aggressive moves with their money. Members expect further volatility throughout 2017, and are actively working to shelter their portfolios from any downturn that may occur. I expect some time in the coming months we’ll look back and consider this to have been a wise move.

Cash & Cash Equivalent

CurrenciesCommodities

Fixed Income

Hedge Funds

Public Equities

Private Equity

Real Estate

Miscellaneous

8%

1%

2007

0%

20%

40%

60%

80%

100%

1%

14%

12%

25%

12%

28%

0%

14%

3%

2010

0%

19%

9%

23%

9%

21%

2%

11%

1%

2013

0%

14%

21%

21%

8%

23%

1%

12%

1%2008

0%

16%

10%

23%

5%

31%

2%

14%

1%2011

0%

16%

13%

24%

9%

21%

2%

10%

2%

2014

0%

12%

19%

27%

7%

23%

0%

13%

2%

2009

1%

23%

13%

19%

9%

19%

2%

12%

2%

2012

0%

14%

19%

21%

7%

24%

1%

10%

1%

2015

0%10%

22%

27%

7%

23%

0%

1%

1%2016

0%10%

21%

30%

6%

21%

0%