SMSFundamentals | May 05 2014
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By Greg Peel
Investment manager Legg Mason has surveyed 4,200 affluent investors in 20 key global markets, including a cohort of Australian investors. Of all cohorts, Australians were most concerned about the investment future for younger family members.
“Australians as an investor group display a larger level of concern at the way the investment landscape is changing”, said Legg Mason’s global head of distribution marketing, Matt Schiffman. “Low interest rates and rising property prices are impacting the ability of their younger family and friends to get on the investment ladder, and they are searching for new opportunities to generate the income they need.”
Of the Australian respondents, 70% believed investment prospects would be worse for future generations. Only 45% suggested they were doing very well, or extremely well, at managing their own investments currently. Moreover, the survey found a significant gap between the level of return on investment those respondents expected to achieve, and what they were actually achieving.
On average, investors expected an annual return of 9.2% but, on average, they were achieving only 6.2%, suggesting a 3% “reality gap”. This reality gap becomes more like pure delusion when it comes to property investment.
Australians invest 10% more into property than the global average, and give property the highest allocation of all their income-producing investments. But on average, property is yielding them a mere 3% a year. That’s a 6.2% “reality gap”.
“Australians have a well-documented love affair with property, but current low average yields in this sector are affecting income opportunities for investors,” said Mr Schiffman. “We found returns were closer in line with expectations for asset classes like equity income and guaranteed income products, which were less popular with Australian investors.”
Australian investors might be globally aware but they remain insular. While 66% of Australian respondents believe China presents the best international investment opportunity over the next 12 months, and 55% saw opportunities in emerging markets in general, only 60% allocated more than 1% of their portfolio to international investment and only 40% had increased their focus towards international opportunities in the last five years.
“Australians are generally more reluctant to look outside of their home market for investment opportunities,” said Mr Schiffman. “This could be a result of tax efficiencies and compliance issues that serve to reinforce the home bias, as well as a generally risk-averse investment style – 77% of investors described themselves as ‘conservative’ in outlook.”
The fault lies not just with parochial, or timid, local investors, but with their financial advisers as well. While Australian investors appreciate the help of their advisers more than their overseas counterparts when it comes to tailoring investments – 43% of investors rated their adviser well – only 30% rated their advisor in terms of suggesting unique investment opportunities, which is below the global average.
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