Investor confidence in equities fell significantly in the first half of 2016, suggesting investor sensitivity to volatility, according to research from Colonial First State Global Asset Management.
The company’s Equities Preference Index (EPI) declined by a total of 29 per cent in the first six months of the year Colonial First State Global Asset Management (CFSGAM) said, compared with only 3 per cent and 9 per cent declines respectively in the second and first halves of 2015.
“The decline was relatively evenly spread from January to May, averaging about 5 per cent per month, suggesting investors took some time in reacting to the market weakness and volatility early in the half,” the company said.
“Surprisingly, the decline in June ahead of the Brexit vote was smaller at just 1 per cent, however this may be because investors already reduced their positions ahead of the vote.”
CFSGAM said the sizeable decline in preference for equities was significant due to the “already low starting point” from which it fell.
The company’s research also highlighted “a significant difference in equity preference by age”, with younger investors (aged under 35) increasing their preference for the asset class by 3 per cent, where those between 50 and 59 years of age decreased theirs by 39 per cent.
“The outsized reaction from the 50-59 age group is surprising, as always the growing importance of capital preservation and increasing risk aversion as these investors approach retirement likely plays a part, however, even considering this, the reaction is significant,” the company said.
CFSGAM said the changing preferences of this older group “may not be driven by redemptions of equities to fund property investment, which we believe has been a driver of large declines in the past”, but could be related to the current superannuation reforms and changes in the political environment.
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