Investors have high return expectations despite low growth market reality
Investors have high expectations for their investments despite the low growth, low interest rate market environment, according to the latest Schroders Global Investor Study*. This finding was more evident among Australian investors, whose income expectations exceeded those of their global counterparts.
The Schroders Global Investor Study* found that investors expect total annual returns, not adjusted for inflation, of 10.7% per annum over the next five years. Regionally, return expectations were highest in the Americas, at 12.4%, 10.9% in Australia and the lowest in Europe at 9.0%. The returns include capital growth of their money, as well as any income paid out in the form of dividends and interest from a variety of investments including cash, bonds, property and equities. Furthermore, return expectations were higher in 2019 than in the previous year, increasing from 9.9% per annum globally and 9.2% among Australian investors.
The study - which surveyed over 25,000 investors worldwide in 32 locations – found that around one in six investors surveyed expected at least a 20% annual return. This is despite major stock markets - such as the S&P and FTSE 100 - all experiencing net falls during the previous year. The average annual return of the S&P 500 since its 1957 inception is less than 8%.
A full list of countries and their average expected annual investment returns over the next five years is shown in Figure 1. Also shown is how stock markets have performed historically for each country.
Figure 1: Average annual expected five-year returns versus actual MSCI index five-year average annual returns
Country | Investors’ expected annual returns over the next five years | Actual stocks market annual returns 2014-2019 (%) |
Argentina | 15.8% | 0.9% |
Indonesia | 15.5% | 5.7% |
Thailand | 15.0% | 7.1% |
Brazil | 14.9% | 12.8% |
India | 14.3% | 9.6% |
UAE | 13.8% | -7.1% |
South Africa | 13.8% | 4.6% |
Mexico | 13.4% | 1.7% |
Russia | 12.5% | 15.8% |
China | 11.7% | 7.0% |
Chile | 11.6% | 2.6% |
Australia | 10.9% | 7.7% |
Poland | 10.7% | 0.2% |
Taiwan | 10.7% | 7.0% |
Sweden | 10.5% | 7.5% |
Portugal | 10.4% | -1.2% |
US | 10.3% | 10.3% |
South Korea | 9.8% | 3.0% |
Singapore | 9.7% | 3.2% |
Switzerland | 9.6% | 6.2% |
Hong Kong | 9.6% | 8.0% |
UK | 9.3% | 5.0% |
Spain | 9.2% | 0.8% |
France | 9.1% | 7.3% |
Netherlands | 9.0% | 11.0% |
Canada | 8.9% | 5.6% |
Denmark | 8.3% | 8.6% |
Italy | 8.1% | 1.7% |
Japan | 8.0% | 7.1% |
Austria | 8.0% | 5.0% |
Germany | 6.8% | 4.1% |
Belgium | 6.5% | 4.8% |
This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Past performance is not a guide to future performance.
Investor expectations for income
Investors were also asked about their expectations for income, with some surprising results.
Globally, investors expect an average income of 10.3% over the next 12 months. A finding that was even more pronounced among Australian investors, who desired income over the next twelve months of 11.5% on average, while they expect to receive 11.0%.
Millennials expect more
Globally Millennials had the highest expectations for income, indicating they wanted their investments to deliver an average of 11.8% over the next year, while older investors aged 71+ had much lower expectations, at 6.9% over the next twelve months.
These results are similar in Australia with Millennials reporting higher desired income expectations (12.9%), versus Generation X (10.8%), Baby Boomers (9.2%) and investors aged 71+ (7.7%).
Reactions to volatility
The study also revealed that 70% of investors globally made immediate changes to the risk profile of their investments during the volatile final three months of 2018. This included, 37% who moved some of their portfolio into lower-risk investments and 36% who opted for higher-risk options. Only 21% of investors kept their investments the same.
Graeme Mather, Head of Distribution at Schroders Australia, said: “It is clear that investors still have high return and income expectations that are not in line with the reality of investment markets. It is also clear that more education is needed to ensure investors don’t change asset allocations, and chase market movements, at precisely the time they should not."
*In April 2019, Schroders commissioned Research Plus Ltd to conduct an independent online survey of 25,743 people who invest from 32 locations around the globe. The countries included Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, the UK and the US. The research defined “investors” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who made changes to their investments within the last 10 years. This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Past performance is not a guide to future performance.
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