Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Survey

20958

Diversification eludes UK investors as Brexit vote looms, says Natixis survey

RELATED TOPICS​

Nearly two thirds (64 per cent) of UK investors believe index funds offer better diversification than other investments, and  that do so at a reduced risk (58 per cent) and help them to reduce losses (64 per cent), according to a new survey by Natixis Global Asset Management.

The findings suggest that investors may be overstating the role of index funds in their portfolios, as well as failing to ensure that they are achieving true diversification. The survey of 750 UK investors, showed that while there is an understanding of the need for greater diversification – a failure to do so effectively means their portfolios are not best positioned to weather market events such as the UK potentially dropping out of the European Union after the 23 June referendum.
 
SIxty five per cent of respondents agreed that a traditional approach (equities and bonds) to portfolio allocation is no longer the best way to pursue returns and manage investments. However, when asked what was more important to them, 62 per cent of investors said a traditional approach to investing, compared with just 38 per cent who highlighted investing in strategies that don’t correlate to the broad market such as alternatives.
 
Concern over the perceived risks involved with alternative assets appears to be the main driver. Less than half of investors (48 per cent) say they invest in alternatives, with the main reason for not doing so being that they are deemed to be too risky. However, of those who do, 60 per cent said they use them for diversification within their portfolio, while 58 per cent said alternatives assist them in achieving better returns.
 
Chris Jackson, Deputy CEO of Natixis Global Asset Management – International Distribution, says that in the current uncertain environment of low interest rates, volatile market performance and events such as a potential Brexit, it is important for investors to identify new ways to achieve returns, one of which may be through alternative investments. “For many investors, alternative investments are the missing link in achieving true portfolio diversification as they offer returns that are uncorrelated to the stock market. Portfolios that are more diversified do tend to produce better returns with lower risk,” he says. “While they have an important place in the portfolio, investors should be cautious about over-reliance on index funds for diversification, as these are the very definition of highly-correlated assets. It can be tough to find genuinely diversifying additions to a portfolio but there are still many different opportunities, such as investing in alternative assets, high-conviction equity strategies and unconstrained fixed income funds.”
 
Most investors do believe that new portfolio strategies would help them to meet their investment objectives, though the primary reason for choosing new strategies is predominantly based on the demand for more effective management of risk, rather than as diversification for their portfolio. 
 
Investors also have high expectations despite their reluctance to take on too much risk. 72 per cent of UK investors say they know the annual investment returns they need to achieve their goals, with an average real annual return (above inflation) of 8.5 per cent being the reported need of investors, based on their understanding of their investment goals.
 
Despite this demand for high real annual returns, the survey also revealed that most UK respondents identify themselves as cautious investors (79 per cent), while 83 per cent admit that if they were forced to choose, they would pick safety over performance, compared to 79 per cent globally.

Of the biggest threats to their investments over the next 12 months, 46 per cent of UK investors cited a global economic slowdown, while 40 per cent said interest rates would likely have the biggest impact.
 
Sixty five per cent of UK investors noted that while they worry about market shocks, they feel helpless when trying to protect their portfolio from them. Furthermore, 50 per cent said they struggle to avoid making emotional decisions when market shocks do occur.
 
“The markets experienced a hugely turbulent start to 2016, with most major indices taking investors on a rollercoaster ride. The rest of 2016 looks no quieter; with forthcoming events such as the outcome of the EU referendum vote in June, the slowdown in China and even the US Presidential elections, it is crucial that investors balance their portfolios appropriately to ensure that any shock – and thereby any emotional reaction – is minimised.

Latest News

Data provider Preqin has published its Deal Flow Monitor: Q1 2024 report, examining trends in..
Global index revenues increased 9.3 per cent in 2023, totalling a record USD5.8 billion, according..
Octopus Investments (Octopus) has announced it has launched a Natural Capital Strategy...

Related Articles

Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by