Kevin Haran

Australian investors say they prefer safety over performance yet have expectations of annual returns of 9.6% above inflation, without taking on extra risk. The need to diversify and play the long game to fund retirement is well understood, yet few are putting their money where their mouth is.

These are some of the key findings from the 2017 Natixis Global Asset Management Individual Investor Survey (the Survey), which today revealed the thinking and behaviour of over 8300 individual investors from around the world. The aim of the Survey is to reveal investor thoughts about portfolio construction, risk, retirement, advice and saving, as well as general sentiment towards investment. The survey also compares Australian investors with their global counterparts.

“Australian investors say that they expect annual returns of 9.6% above inflation, which is a goal that would absolutely push them towards riskier assets, yet 81% said they prefer safety over performance, which does seem like a contradiction,” said Kevin Haran, Managing Director of Natixis in Australia.

“At the same time, this focus on risk is set against a backdrop of short-termism, where over a quarter (27%) of Australian investors say that losses or fluctuations at a monthly level concern them, when really they need to focus on the long term,” he said.

Investing strategies and risk

What Australian investors say and what they do appear to be two different things when it comes to investment strategy and how much risk they are willing to take.

Mr Haran pointed out that achieving true portfolio diversification and risk management through investment in alternatives, in addition to bonds and stocks, is proving elusive for some investors.

“Three-quarters (76%) of Australian investors (compared with 70% globally) say they are willing to invest in alternatives in order to diversify their portfolio and minimise risk, yet only 39% actually do.

“Part of the reason may be that, as an industry, we haven’t explained alternatives well. There may be some misunderstanding about their role in portfolio construction. For example, 70% of Australian investors (compared with 66% globally) think alternatives are riskier than traditional asset classes, and 63% say they are too complicated to invest in,” Mr Haran said.

Attitudes towards index funds

Investors’ appetite for index funds is strong, with both global (66%) and Australian (64%) investors agreeing that index funds give them returns comparable to the market. Interestingly, almost six in ten (58%) of Australian investors believe that index funds are less risky (62% globally), and can help minimise losses.

Mr Haran said that while Australian investors may embrace index funds, they are wary of closet- indexers.

“Seventy-seven percent of Australian and 74% of global investors do believe that a number of fund managers who describe themselves as active are actually closet-indexers, meaning they charge high fees for essentially tracking the index,” he said.

Retirement and wealth transfer

Mr Haran said that despite our mandatory superannuation system, nearly 80% of Australian investors believe funding their retirement is increasingly a personal responsibility.

“Over nine in ten (94%) of Australian investors think personal retirement savings are an important source of funding in retirement, and are much more concerned than their global counterparts about outliving their assets – 21% of Australians compared with 11% globally.

“One of the reasons investors are concerned about outliving their assets is that they are realistic and well-informed when it comes to understanding how much they will need in retirement. Seventy-seven percent of Australian investors said they knew how much they need to save in total, 72% (69% globally) know how much income they will need to fund their lifestyle in retirement and 71% (68% globally) know how much they need to save each year,” Mr Haran said.

Trust a key consideration when seeking financial advice

Against a backdrop of general suspicion around alternative facts, sophisticated message control and the veracity of information appearing through social media channels, investors are more focused than ever on trust in their relationship with their financial advisor.

“In Australia, 93% of investors cited their financial adviser as their trusted source when making investment decisions, compared with 88% of investors globally, whereas our trust in financial institutions was relatively low, at 59%, compared with 62% globally,” Mr Haran said.

One major point of difference between Australian and global investors is that Australians appear to be more focused on cost than their global counterparts. Over half (51%) of Australian investors considered cost a very important factor when choosing a financial adviser, compared with 40% of global investors.

Cost concerns were echoed by the responses of unadvised investors: 47% of Australian investors said they were put off by the cost, compared with 35% of investors globally, while 34% said the results are not worth the fee.

Insights into investor thinking have implications for finance industry

In conclusion, Mr Haran said the Survey provides important information for investment managers and financial advisers alike.

“It’s great to see that Australian investors understand how important it is to save for retirement and how much they will realistically need to fund the lifestyle they want. On the other hand, it’s clear many investors need to take a longer-term view, and look carefully at their portfolio construction decisions.

“We as an industry have a role to play. Asset managers and other financial professionals need to help individuals understand the benefits of diversification, the pros and cons of index funds and how to use alternatives to minimise risk and achieve performance over the long term,” he said.

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