Investors turn to managed products

By Jayson Forrest - Managing Editor  - IMAP Perspectives

The outlook of Australian investors for domestic stocks remains subdued in the opening months of 2020, despite the market’s strong performance in 2019. According to findings from the Investment Trends’ Investor Product Needs Report, the average investor only expects the All Ordinaries Index to rise by 1.9 per cent over the coming 12 months – despite the All Ordinaries Index gaining 11.0 per cent 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 per cent throughout 2019, even falling into negative territory in August 2019. This comes in stark contrast to the 2.0 per cent to 4.0 per cent levels typically observed between 2014 and 2018,” said Investment Trends Senior Analyst, King Loong Choi.

“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.”

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

 “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,” Choi said.

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

 According to Choi, 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,” he said.

The Investment Trends research also discovered that 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 10 investors say they consider ESG factors when selecting (or avoiding) certain investments. A further 14 per cent intend to start doing so in the future, and 19 per cent are interested to learn more.

“There is strong appetite for investments that demonstrate good ESG standards among Australians - both 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,” Choi said.

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.” said Choi

The 14th edition of the Investment Trends Investor Product Needs Report is based on a survey of 7,933 Australian investors concluded in September 2019.