Investors are reducing their exposure to Australian equities, opting to redeploy funds into property and global equities, says Colonial First State Global Asset Management.
According to a recent report by CFSGAM and University of Western Australia Business School – Investor Insights: Searching for growth outside of Australian equities – the Equity Preference Index (EPI) declined 11 per cent in March quarter 2015.
CFSGAM report author and senior analyst, economics and market research, Belinda Allen said: "With preference of Australian equities falling, there has been a clear and consistent uptick in applications for global equities, across all age groups.
"The data suggests that this preference for local shares has waned with the fall of the Aussie dollar, and with good returns and diversification offered from global equities, a greater move to invest offshore is likely."
The report pointed out the strong impact of age on equity allocation.
The report found that the 50 to 59 and older age group saw a substantial decline in Australian equities preference, with EPI falling 16 per cent over the 12 months to December 2014.
"What is remarkable is that even investors in the over 59-year-old bracket, who are typically in or close to retirement, have been investing additional funds into global equities," she said.
EPI also declined slightly, three per cent over the 12 months to December 2014, in the 35 to 49-year-old age group.
However, EPI among the under-35 age group has been consistently positive, up 17 per cent over the last 12 months.
“Despite weak equity preference for Australian equities, investors do appear to be willing to take on risk in their search for growth; particularly through exposure to investment property and global equities,” the report said.
“There is also a shift in terms of how investors are saving and investing in growth assets – with further increases in self-managed super fund (SMSF) balances amongst younger investors and a preference for owning shares and property directly,” as stated in the report.
The report noted the consequences of the trends observed.
Namely, “Investors aged between 35-49 years of age, particularly females, through low and falling equity preference, are not adequately protected from longevity risk,” the report found.
According to CFSGAM, this group is the most at risk of not meeting retirement objectives.
“These investors need to continue to have exposure to growth assets to build their savings pool, as well as saving more and saving at an earlier age,” the report said.
CFSGAM called for the industry to focus on investors before they reach retirement, particularly females aged 35-49, to assist in mitigating behavioural biases.
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