Many investors say market volatility is the biggest threat to their investments, but they are unprepared for the risk in turbulent markets and need help building stability into their portfolios, according to a new survey released by Natixis Investment Managers
In a global survey of thousands of investors, a majority (64 percent) said that they are interested in trying new strategies to help diversify their portfolios. Five in ten (51 percent) say volatility has them looking for investments other than stocks and bonds; and 58 percent say they want new portfolio strategies that are less tied to the broad market.
But the survey found that investors have yet to fully embrace alternative because they need more education. Just 38 percent of investors surveyed say they own alternative investments, and 16 percent don’t know if they own them; that number is up from 11 percent in 2017, the survey found.
The survey, which was conducted in February and March, included 9,100 individual investors in 25 countries and regions including Asia, EMEA, Latin America, and North America. In the U.S. Natixis surveyed 750 investors with a minimum of $100,000 in investable assets.
It found that on the heels of 2018 losses, investors’ annual return expectations rose to new heights. Their long-term expectations jumped to 10.9 percent above inflation from 9.8 percent in 2018. The report, however, pointed out that U.S. financial advisors surveyed by Natixis last year believe an annual return of 6.3 percent is realistic.
Investors are expecting an annual return of 10.1 percent above inflation in 2019, the report noted.
The survey found that most investors (77percent) would take safety over performance. Also, 71 percent know portfolio fluctuations of 10 percent are not an unusual occurrence, and nearly half (47 percent) would be willing to pay a premium for volatility protection.
“The record bull market continues to create a growing disconnect between what investors expect from the market and what is realistically achievable, especially given their aversion to risk,” David Giunta, CEO for the U.S. and Canada at Natixis Investment Managers, said in a prepared statement. “Last year’s market volatility was a strong reminder of the importance of professional advice in helping to build diversified portfolios tailored to both investors’ goals and their risk tolerance,” he added.
The report indicated that many investors don’t comprehend how rate hikes affect their fixed income investments. In fact, just 30 percent of investors know that, when interest rates rise, bond prices fall, and only nine percent recognize that lower bond prices mean higher bond yields, or income, in the future.
Also, just 2 percent of investors correctly understand that when interest rates rise, the price of bonds decreases and income received from bonds in the future increases. In addition, 64 percent believe investing in index funds helps minimize losses, yet 56 percent realized index funds are riskier than they thought after experiencing the steep market decline at the end of 2018, the report said.