Over-confidence amongst UK investors with majority expecting 8% return
UK investors remain optimistic about investment opportunities this year, according to a survey by fund group Schroders. However, it revealed a disconnect between expected returns and attitude to risk.
Just over half (51%) said they are more confident about investment opportunities in the next 12 months compared to last year. This is compared to 54% of global investors who say they are more confident.
Just under nine in ten (87%) of UK investors expect to see their investments grow over the next 12 months, compared to 90% of European investors overall and 91% globally.
The average expected rate of return is 8% in the UK compared to 10% in Europe and 12% globally.
Increased appetite for investments
The study of over 20,000 retail investors in 28 countries, shows an increasing appetite for investments compared to previous years. Almost half (46%) of those questioned in the UK intend to save or invest more in the coming 12 months, compared to just 39% of those questioned in 2014.
On average, UK investors plan to increase the amount they save or invest by 8.6% over the next year, compared to 8.5% globally. Overall, 70% of UK investors are looking to generate a regular income from their investments, compared to 87% of investors worldwide.
Disconnect between expected returns and attitude to risk
Some 85% of UK investors said they made a profit from their investments in the past 12 months and just 4% reported a loss, with average returns of 7%.
However, despite the high levels of confidence being reported this year and global investors’ expectations of double-digit returns in the next 12 months, the research reveals a significant disconnect between expected returns and the appetite that investors have for risk, with many favouring shorter-term returns and lower risk assets.
On average, UK investors are looking to place just 14% of their investment portfolio in higher risk / higher return assets, with over half (53%) of investors’ funds going to low risk / low return assets and a third (33%) being placed in medium risk assets, such as bonds.
Whereas, global investors are looking to place an average of 21% of their investment portfolio in higher risk / higher return assets, such as equities, with 45% of investors’ funds going to low risk / low return assets, such as cash, and around a third (35%) being placed in medium risk assets, such as bonds.
The data shows a bias towards short-term investing, with 46% of global investors preferring outcomes within one to two years and only 12% preferring a long-term approach.
Despite this disconnect, less than a fifth (19%) of UK investors will change their strategy by seeking professional financial advice, with two fifths (40%) intending to invest as they have done in previous years. Globally less than a quarter (21%) of global retail investors will change their strategy by seeking professional advice and more than a third (34%) of global retail investors intend to invest as they have done in previous years.
James Rainbow, head of financial institutions and strategic accounts at Schroders said: “This year the Schroders Global Investment Trends Survey demonstrates a thirst for income but a worrying over-confidence amongst retail investors. Growth is returning but it could be challenging for investors to achieve returns of between 8-12% while only placing 14-21% of their investment portfolio in higher risk assets. Whilst returning investor confidence should be celebrated, our survey shows that many investors are taking an unrealistic view on how their assets will perform in a market that is still dogged by the worst recession for a generation, and a de-synchronised monetary policy. Investors need to balance both risk and return very carefully when making their decisions rather than just focusing on either risk or potential return – they are always linked.
“The necessity and challenge to generate income from investments is strong, particularly given low interest rates in many countries, but income need not come at the expense of capital growth. Getting the right advice and building a balanced portfolio can achieve both and the potential to do so in 2015 is as good as it has been for some years.”