What Do The Rich Know That No One Is Telling Us?

Think the stock market is going to go higher? I suspect some people may disagree with you.

A new survey of family offices by Citi finds that the wealthy are cash heavy—meaning they may fall short of the investment returns they’re expecting.

Wealthy families have about 39 percent of their assets in cash, according to a recent poll of more than 50 large family office representatives from 20 countries conducted by Citi Private Bank.

Stocks represented about 25 percent of portfolios on average. Bonds were about 17 percent of the asset mix and various classes of less liquid and alternative investments amounted to 19 percent.

“Using these weightings, our own return expectation for the portfolio … comes to just 4.4 percent. This matches what we at Citi Private Bank observe generally among high end investors: very high cash holdings, with a current asset allocation unlikely to achieve return targets,” Steven Wieting, the bank’s global chief investment strategist, wrote in a recent client note.

Well, maybe they changed their goals. Maybe now their hope is to survive a crash. At that point, when stocks go through the floor, not only do they avoid losing a fortune but they can also sweep up some deals.

The survey asks these same people about their opinions. Here it gets surreal:

The families were also asked if U.S. stocks were more likely to rise or fall 10 percent over the coming year. Some 65 percent expected a gain.

“What does this all suggest?” Wieting asked. “In our view, under-invested bulls.”

No, it suggests to me that they are hoping for a gain but getting ready for a crushing loss. Of course, Citi denies such a possibility.

Citi is more bullish than its clients.

“Our own future equity return expectations are positive, but well short of the pace seen over the past five years as market valuations are now far from depressed. However, in the recovery to date, investors have doubted the sustainability of huge profit gains seen at the start of the U.S.rebound,” Wieting said.

“Our interpretation of the current market pricing is that in the years ahead, U.S. equity markets can likely absorb a gradual rise in risk-free interest rates, assuming the source of the rise is increased growth expectations, or alternatively, confidence in the sustainability of growth.”

Just remember that in 2006 and 2007 CNBC was full of stock market cheerleaders denying that there were any problems building in the US economy. It is true that, the story mentions another survey of even richer people who are not holding as much in cash. But it is hard to know what to make of that data. It isn’t enough to re-assure me.

What do you think?