Five years after the financial crisis, investors are chasing regular income over high returns
Investors want their assets to worker harder post-GFC: CREATE
Findings derived from five years of the CREATE survey series (2009-2013), developed by CREATE-Research and commissioned by Principal Global Investors, reveal a surge in popularity for income focus funds amongst investors seeking a new form of diversification.
The five-year trends highlighted an emphasis on risk management and regular income rather than chasing high returns.
The five-year global trend analysis shows a shift in investor behaviour from a focus on wants to a focus on needs. DB schemes have been determined to gain control over the spiralling deficits since 2008, and DC schemes have experienced a significant surge in popularity with investors chasing advice-embedded products that would incorporate the best features of DB plans.
The renewed focus on needs is further reflected in investors’ growing appetite for real assets such as real estate and infrastructure. It is also evident from the increasing attractiveness of multi-asset class funds, – with five year asset class trends revealing that 63% of DC schemes in 2013 favour these despite not being on the radar in 2009.
Key DB/DC industry global trends 2009-2013 include:
- DB plans have increasingly favoured traditional indexed funds (+21%), high yield bonds (+13%), emerging market equities (+12%) and real estate (+7%) for strategic asset allocation over the last five years.
- DB schemes’ newly discovered choices, not on the radar in 2009, include emerging market bonds (cited by 46% of the respondents in the 2013 survey), alternative credit (46%) and infrastructure (45%).
- For DC plans, in the medium term, there has been a move from target date towards favouring target income retirement funds (+16%).
- Newcomers for DC schemes include multi-asset class funds (cited by 63% of investors in the 2013 survey) and diversified growth funds (45%).
The survey series has also highlighted the notable difference in the approaches of DB plans by sectors, revealing disparity between public and private sector approaches to risk. Those in the public sector have been accruing risk in the last five years in hopes of reducing deficit, whereas private sector investors have been de-risking their portfolios in order to avoid loss.
Professor Amin Rajan, CEO of CREATE-Research and the author of the CREATE series, comments: “The shift in investor focus from wants to needs is marked, as is the accompanying change in the underlying asset mix. This process has created its own leaders and laggards. It has also catapulted new asset classes to the fore, especially ETFs. The longer the debt crisis lasts, the more ingrained will these changes become.”
Grant Forster, CEO of Principal Global Investors Australia, comments: “Since the 2008 Global Financial Crisis and the resulting debt crisis, investors have needed to work their assets harder – the emphasis on yield has only continued to increase. What is more, market valuations have become distorted, with price-earnings ratios having no sensible anchor points. As a result, choosing real assets and alternative investment options has become a new way to navigate risky markets. We have found this especially relevant at Principal Global Investors, as we seek to understand our clients’ goals and deliver customised options, such as advice-embedded investing, to help meet their needs while avoiding risk that can eat away retirement portfolios.”
Sign up at Principal to download the full report for 2013, ‘Investing In A Debt-Fuelled World’.
