Investor sentiment remains grounded amidst rising markets: Investor Product Needs Report

King Loong Choi

Leading research firm Investment Trends has released its latest Investor Product Needs Report, an in-depth study of Australians’ investing behaviour and their use of various investment products.

The study, now in its fourteenth year, is based on a survey of 7,933 Australian investors:

Investor sentiment remains grounded amidst rising markets

As we enter a new decade, Australian investors’ outlook for domestic stocks remains subdued despite the market’s strong performance in 2019. The latest research from Investment Trends shows that the average investor only expects the All Ordinaries Index to rise by 1.9% over the coming 12 months – despite the All Ords gaining 11.0% in the 2019 calendar year.

“Australians have gradually revised their outlook for domestic stocks downwards. Their 12-month forward looking expectations for the All Ords failed to rise above 2.0% throughout 2019, even falling into negative territory in August 2019. This comes in stark contrast to the 2.0% to 4.0% levels typically observed between 2014 and 2018,” said King Loong Choi, Senior Analyst at Investment Trends.

“Global macroeconomic and geopolitical tensions continue to weigh heavily on investors, and their bearish sentiment has prompted many to adopt a more defensive stance in their asset allocation.”

Managed investment products are rising in popularity

Australians are shifting their investing priorities in line with their subdued market outlook. When asked to describe their main investment objective over the coming 12 months, fewer are aiming to maximise capital growth (21% cite this, down from 26%). Instead, more investors say their main goal will be to protect their assets and income from market falls (15%, up from 11%).

“More investors are prioritising capital preservation and generating a stable income stream. To effectively achieve these priorities, many realise they need a diversified portfolio, which has led to the rising adoption of managed investment products,” said Choi.

“Across the range of managed investments, Australian investors currently allocate the largest proportion of their total portfolio to unlisted managed funds (7%, on average), while ASX-listed investments such as ETFs and LICs are gaining popularity (both 4%, up from 3% in 2018).”

“Users of managed investments do not limit themselves to one single managed product, typically holding at least two. However, cannibalisation between managed investments is limited, as investors most often finance these investments using cash or through the sale of direct equities – not by reducing their holdings in other investments,” explained Choi.

Sustainable investments are a priority

Responsible investing is gaining traction as more Australians seek to align their ethical, environmental, social and corporate governance (ESG) principles with the investments they hold.

Currently, three in ten investors say they consider ESG factors when selecting (or avoiding) certain investments. A further 14% intend to start doing so in the future, and 19% are interested to learn more.

“There is strong appetite for investments that demonstrate good ESG standards among Australians young and old. Older, wealthier investors place greater importance in good corporate governance standards when selecting investments, while the younger generation are more likely to be attracted to companies that demonstrate ethical, social and environmental values,” said Choi.

“While more ESG-centric products are being launched at pace, it is important for providers to understand that the priorities of Australians are highly nuanced across the many facets of ESG. There is no one size fits all approach, and providers will do well to understand the evolving needs of the retail investing population.”

About the report

The fourteenth edition of the Investor Product Needs Report provides an in-depth study of Australian investors’ investing behaviour and their use of investment products such as direct equities, ETFs, LICs and managed funds. This report is based on a large-scale survey of 7,933 Australian investors concluded in September 2019.