Super-wealthy investors are making some changes to their portfolios for 2019.
They are increasing their cash holdings and reducing their equity exposure. They are also cutting back on some of their real estate investments and finding a “short-term solution” in fixed income, according to Michael Sonnenfeldt, founder of investment club Tiger 21.
“There’s a lot of caution and some of it is [market] volatility,” he said Thursday on CNBC’s “Power Lunch.” Then there is also the “uncertainty of government policy,” he added. The members of Tiger 21 are more than 700 strong and have a total of $71 billion in assets.
However, there is one growing trend they are hopping aboard — cannabis.
The industry has seen a big boost since Canada legalized cannabis for recreational use. While marijuana use is illegal in the U.S. on a federal level, a number of states have legalized it for recreational and/or medical use. The stocks of Canadian pot companies like Tilray, which debuted on the Nasdaq last year, and Canopy Growth have since taken off — although not without a lot of wild swings.
The rich, though, are looking at more than just public equities when it comes to cannabis.
“Sometimes it’s owning the land that cannabis is grown on, sometimes it’s owning the real estate where there are factories, if you will, and sometimes it’s owning the companies and then of course there’s the public market,” Sonnenfeldt said.
For one, there has been no new supply of gold in the last eight years, Sonnenfeldt noted. Then, there is the fact that investors need an alternative to the volatile stock market.
“Typically people first think of gold as an inflation hedge but over history it’s really been an instability hedge,” he said.
Tiger 21 members, meanwhile, are concerned about the recent proposals to tax the wealthy. However, Sonnenfeldt said they are equally worried about a $1 trillion deficit. The nonpartisan Congressional Budget Office is projecting the U.S. deficit will hit that milestone by 2022.
“Clearly we can’t run these kind of deficits and there has to be some change, perhaps, in tax policy but to tax hard work and try to redistribute wealth has never created wealth,” he said. “Finding that balance is really what we need to do.”
On Thursday, Sen. Bernie Sanders, I-Vt., said he’d be introducing a plan to hike the estate tax — including a 77 percent rate for over $1 billion. His proposal follows that of Massachusetts Sen. Elizabeth Warren, a possible 2020 Democratic candidate, which calls for a 2 percent tax every year on households with assets of more than $50 million. That rate would raise to 3 percent on households with assets over $1 billion. And Rep. Alexandria Ocasio-Cortez, D-N.Y., wants to target the wealthy with a 70 percent marginal tax on income above $10 million.
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— CNBC’s Thomas Franck, Stefanie Kratter and Patti Domm contributed to this report.