In focus

Institutions don’t share retail investors’ optimism on returns

Schroders’ studies suggest retail - or individual – investors are more optimistic about future returns than investors at large institutions. Individuals have indicated that they expect average annual returns of nearly 11% over the next five years while institutional investors anticipate a more moderate 6%.

Schroders’ Institutional Investor Study is an analysis of views from investors at 650 pension funds, insurance companies, sovereign wealth funds and foundations from 20 locations across the world. The Global Investor Study, which surveys individual investors, asked more than 23,000 respondents across 32 locations for their investment views.

Sentiment appears little changed compared to a year earlier, despite two thirds of individual investors expecting economic pain from Covid-19 to last anything between six months to two years.

The returns expectations include investment growth, as well as any income from a variety of investments including cash, bonds, property funds and equities.

When we undertook these studies in 2019, we discovered similar global expectations for both groups: individuals expected returns of 10.7% (10.9% this year) while institutions forecast a smaller 5.7% (versus 5.9% this year).

There was an apparent relationship between future return expectations and historic market performance. In regions where returns in recent years have been high, such as the US, future expectations also tended to be higher. In other areas, such as Japan, lower historic returns appeared to lead to lower predictions.

How realistic are these expectations?

Every year Schroders’ economics team puts together forecasts for the decade ahead for major financial markets. For the period 2019-2029, the team expects global equity market annual returns to average 5.7%.

Not even emerging markets equities can offer the type of returns individual investors are after; according to our economists’ estimates, they could generate returns of 8.5%.

Similarly, the best performing bond market should be emerging market bonds (5.2%) while Japanese bonds could deliver negative returns.

Investors display a preference for equities

The studies also looked at investors’ asset allocation. As has been the case since we first launched the institutional survey in 2017, developed equity markets are the most popular asset class.

In line with previous years’ results, investors plan to allocate more than 30% of their portfolios in developed market equities in 2020 and plan on increasing this to 33.1% in the next 12 months. The other area investors intend to increase their allocation to is private assets.  

The second biggest allocation (nearly 25%) is to developed market bonds with emerging market equities and bonds making up a more moderate 8% each.

Among individual investors, stocks and shares are also a top pick, with 62% of respondents having put their money to work in this way. Holding cash in bank accounts was another popular choice among individual investors.  

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Forecasts and assumptions may be affected by external economic or other factors.

About the Schroder Institutional Investor Study:

The global study was commissioned by Schroders for a fourth consecutive year to analyse institutional investors and their attitudes towards investment objectives, performance outlook and risks to their portfolio. The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.9 trillion in assets. The research was carried out via an extensive global survey during April 2020. The 650 institutional respondents were split as follows: 179 in North America, 248 in EMEA, 173 in Asia Pacific and 50 in Latin America. Respondents were sourced from 26 different countries.

About the Schroders Global Investor Study:

Schroders commissioned Raconteur to conduct an independent online study of 23,450 people in 32 locations around the world between 30 April and 15 June 2020. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.

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This material has been issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders) for information purposes only. It is intended solely for professional investors and financial advisers and is not suitable for distribution to retail clients. The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds. The information contained is general information only and does not take into account your objectives, financial situation or needs. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this material. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this material or any other person. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. You should note that past performance is not a reliable indicator of future performance. Schroders may record and monitor telephone calls for security, training and compliance purposes.