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Significant disconnect between investor risk and return expectations – Schroders

According to the firm’s Global Investment Trends survey which polled 20,706 retail investors across 28 countries in March, the average expected rate of return expected over the next 12 months is 12%. However, they believe to achieve these returns by investing almost half of their new investments in low-risk assets.

European investors expect a slightly lower average return of 10% on their portfolios in the next 12 months, which would still be one percentage point higher than the average return they actually achieved in 2014. They also plan to invest a little bit more in low-risk assets than the global average (see chart below).  

 The expected double-digit return in combination with a relatively high share of low-risk investments led Massimo Tosato, executive vice chairman of Schroders, to conclude that there is a disconnect between the return expectations of investors and the risk they are willing to take. “The report demonstrates a worrying overconfidence among investors globally,” he said.

James Rainbow, head of financial institutions and strategic accounts at Schroders, added: “Many investors are taking an unrealistic view on how their assets will perform in a market that is still dogged by the worst recession for a generation, and a de-synchronised monetary policy. Investors need to balance both risk and return very carefully when making their decisions rather than just focusing on either risk or potential return – they are always linked.

Asian optimists

Overall, investors are more confident about investment opportunities than a year ago, but the degree of optimism varies wildly across the globe. The world’s most upbeat investors are to be found in India, which saw its stock market return over 30% last year. Investors in other Asian countries are also very optimistic. Investors in Russia and Sweden are the least bullish of all. Only slightly over a quarter of investors in these countries see better investor opportunities than a year ago.

Their relatively downbeat mood does probably not reflect pessimism about the global equity market outlook, but is likely of domestic origin. Western sanctions on Russia weigh on local investors, who saw their currency and stock market plunge last winter, though both have gained some pace in recent months. Swedish investors are likely less optimistic than a year ago because in the meantime the Social Democrats, who are perceived as less market-friendly than the previous right-wing government, have won the general elections, which were held in September.

Part of the Bonhill Group.