Australian retail investors are displaying a disconnect in their strong belief in local equities and their lack of diversification in their portfolios, according to the results of Goldman Sachs Asset Management’s latest Retail Investor Survey.
Investors say they have little confidence in Australia’s economy but at the same time they have a big appetite for domestic equities.
The results of the survey of 600 people questions the soundness of some investment decisions and gives some insight into investor psychology.
In Australia, 16% of the local equities market is owned by self managed superannuation funds. This drives a significant part of the market to buy local companies with a good dividend history.
In the latest retail investor survey, only 13% are more confident in the outlook for the Australian economy than they were a year ago.
This low belief in the local economy is at odds with expectations of high returns from Australian equities.
Portfolios are skewed heavily towards equities with 86% holding Australian shares. More than half (58%) are either confident or very confident in the 12 month outlook for Australian equities.
And despite wanting lower risk, portfolios appear to lack diversification, highlighting another disconnect between risk appetite and asset allocation.
Three-quarters (77%) expect a return of more than 5% a year from their investment portfolio over the next three years, with 35 to 44 year olds the most bullish (86%).
Men expect higher returns than women, with 19% forecasting a return of more than 10% a year compared to 15% of women, and 62% expecting returns of 5%-10% compared to 55% of women.
Jessica Jones, Managing Director and Head of Third Party Distribution at Goldman Sachs Asset Management for Asia Pacific (ex-Japan), says the survey reveals a clear and concerning disconnect.
“What isn’t clear is what is driving this equities bias,” she says.
“Perhaps investors don’t see the benefits of diversifying into other asset classes or geographies at a time when confidence in the Australian economy is low.
“Another possibility is that investors believe they can manage risk by holding diversified stocks within their equities portfolio, but we would caution investors that this type of approach could leave them vulnerable to sharp market downturns.”