Hungry for income, overly optimistic Hong Kong investors face risks: Schroders Global Investor Study 2016

13/10/2016
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The Schroders Global Investor Study 2016, which surveyed 20,000 investors in 28 markets, found that investors in Hong Kong, like many of their global peers, have overly optimistic expectations of income from investments, a short-term investment horizon, and overconfidence about their investment understanding. The survey also took a closer look at the behaviour of Millennials relative to their older peers (36 years old and over) and revealed surprising investment patterns by Millennials.

Overly optimistic income expectations

Hong Kong investors seem overly optimistic about the level of income that their investments may generate. On average investors would like to generate an investment income of 8.9% per year. In the current environment where bond yields from key markets are below 1%, coupled with the average stock market yield of around 3.8%1, investors with very high income desires will likely be disappointed.

Short-term investing bias

Investors in Hong Kong also have a relatively short-term investment view. While advisers usually recommend a minimum 5-year holding period for mutual fund investments, investors reported staying invested for only 3.4 years on average. Millennials are even more short-term oriented, as they hold their investments for an average of 2.6 years, compared to 4.3 years for their older counterparts.

Overconfident yet desire to learn

Hong Kong investors’ self-belief is high, with very few (11%) admitting to having a less-than-average understanding of investments. Amongst those who describe themselves as having more understanding of investments than average (46%), confidence is higher among Millennials, with 51% of them feeling this way, compared to 41% of their older counterparts. Positively, there is a strong appetite for investors to learn more. Almost all (94%) investors believe they need to improve their investment understanding.

Chris Durack, CEO of Schroders Hong Kong, said:

“In the current environment, aiming for an income in the range of 8% to 9% is a near impossibility without taking on significant levels of risk. However, avoiding risk is also unlikely to allow investors to achieve their investment goals. Instead investors are better off looking for ways to participate in the markets where risk is managed and diversified; one example would be an actively managed multi-asset portfolio.

“We want to highlight that the valuation at which an investment is acquired will have a large bearing on its subsequent return especially over the medium to long term. We have looked into global equity market returns over the last 40 years. Average annualised 3-year return would be 17%, when entry made at 14 times price-to-earnings, compared to 3.7% when investing at price-to-earnings of 24 times or above*. Now, perhaps more than ever, it is important to invest in assets with sensible valuations. We would also caution that where low average returns are expected to prevail, strategies that involve chasing past performance or a ‘set and forget’ approach can be dangerous.

"Investors have confirmed through our survey the opportunities for investment managers and financial advisers in addressing requirements for quality educational services, investment advice and strategies tailored to meet reasonable return objectives.”

* Source: GFD, 31 Jan 1970 to 30 Sep 2014 in USD.

Schroders Global Investor Study 2016 also found that:

  • Retirement income is likely to be based mainly on other savings (30%), with personal pensions (19%) and company pensions (16%), contributing the next largest proportions.
  • Main reasons for investing were based on income, rather than saving to buy something.
    • Over half invest to supplement salary/income (55%).
    • Just under half invest to supplement pension/annuity (48%) or to re-invest income and grow their portfolio (44%).
  • Main drivers in choosing an investment product were mixed (average importance ratings out of 10);
    • Important tangible elements were getting a return higher than inflation (7.7), getting back at least the amount invested at the end (7.7) and long-term potential growth (7.5).
    • Other important attributes were low fees (7.4), good track record/past performance of the investment (7.3), reputation of company or manager (7.2), liquidity (7.2) and immediate income (7.2).
  • Investors felt they would live just over two decades (21.9 years) after their retirement date, slightly higher than the global average (21.2).

Further information about the survey can be found at www.schroders.com.hk/gis.

1 Source: FTSE, S&P 500, CAC, DAX, Shanghai, Nikkei, ASX, Hang Seng, Bovespa, Mexbol. Average forward 12-month yield across 11 indexes as at 18 May, 2016, according to Bloomberg data.

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