More than half of investors are convinced passive investment strategies can help them minimise losses and reduce risks in their portfolio, according to a survey by Natixis Global Asset Management.
The asset management firm commissioned CoreData Research to produce the Individual Investor Survey 2016, which concluded investors are “confused, conflicted and misinformed” when it comes to decision-making.
A broader Natixis study surveyed the opinions of 7,100 investors, with minimum net investable assets of US$200,001, around the world. CoreData analysed the responses of the 300 Australian investors surveyed.
“Some investors appear to be misinformed about their investment options. Investors are placing their hopes on index funds but are not in tune with the risks,” the report said.
Fifty-two per cent of Australian investors said they believe passive investment strategies can help them minimise losses, compared with 60 per cent of investors globally.
Fifty-five per cent of Australians think index funds are “less risky” and 56 per cent said “index funds offer better diversification than other investments”.
Natixis managing director for Australia Kevin Haran acknowledged that the investors’ conclusions about passive investments could be right, but he said they are “a bit too simplistic”.
“Passive [investments] most definitely can play a role in a portfolio. That’s a big challenge that advisers could help people with,” Mr Haran said.
The survey also found investors have relatively high real annual return expectations, but a low appetite for risk.
Globally, 64 per cent of investors think a real annual return of 9.5 per cent is realistic, whereas two-thirds of Australian investors believe 8.6 per cent is realistic.
However, 67 per cent of Australian investors and 79 per cent of global investors say if they are forced to choose, they will pick safety over performance.
“The survey highlighted that people think they need double digit returns,” Mr Haran said.
“But if they were to pick between performance and safety, they chose safety. So there’s a misalignment there.”
Natixis, which was established in Australia in January 2015, has a ‘durable portfolio’ philosophy that focuses on risk rather than specific products, Mr Haran said.
“It’s going to be challenging to find double-digit returns. You have to get people to think about risk first.”