A new survey has found that investors seeking higher returns, better diversification and lower volatility are flocking to active management.
The Natixis Investment Managers Survey has found investors prefer active management to achieve the diversification they need to combat volatility, but confusion still exists in the differences between active and passive investing.
More than half of individual investors, 56 per cent, were prepared to pay a premium for active management to combat volatility, with 91 per cent believing it’s important to protect assets in periods of volatility.
Investors’ return expectations had actually increased despite current challenging markets with 86 per cent saying long-term results were more important than short-term gains but 77 per cent would take safety over performance if forced to choose.
Chief executive of Natixis Investment Australia Damon Hambly said investors did not seem to grasp that if they wanted higher returns they needed to take risk.
“The fundamental disconnect between their expectations about return and their ability to tolerate risk highlights how important it is for investors to work with their advisers to better understand risk and volatility – if they are to be properly equipped to achieve their long-term return goals,” he said.
Investors’ expectations kept aligned with active strategies, 68 per cent expected their portfolio to differ from the index and 70 per cent said it was important to outperform the benchmark.
Past surveys revealed that when it came to investing in alternatives investors valued support from advisers, which could see an uptick as 57 per cent of investors said that increased volatility means they need more than stocks and bonds.
There was also lack of education surrounding index funds as only 68 per cent of investors recognised that index funds give market returns up or down and offer no protection for a market fall.
Eight out of ten financial professionals said the 10-year bull market had made investors complacent about risk and recent volatility had done little to change that.
Head of distribution for Natixis Investment Managers in Australia Louise Watson said investors had come to expect strong returns from a bull market, but that needed to change.
“As a result, their return expectations may be unrealistic – particularly if they do not fully understand risk, volatility and the difference between active and index investing. Index funds have no built-in risk management and are exposed to the exactly the same level of risk as the market as a whole” she said.
However the fact that 86 per cent were more concerned with long-term results was encouraging said Ms Watson as in this market condition it was more important than ever.
“In today’s more challenging conditions – a long-term view is more important than ever, and active management is the best way to identify opportunities, but also to manage downside risk,” she said.
Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms.
Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.
Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).
You can email him on: [email protected]