Goldman Sachs AM publishes results of annual Australian retail investor survey

Retail investors say they have low confidence in Australia’s economic outlook and a low appetite for investment risk according to Goldman Sachs Asset Management’s latest Retail Investor Survey, conducted in November 2014.

Despite this, current portfolios lack diversification geographically and by asset class, with a particularly heavy bias towards Australian equities and low exposure to fixed interest, and there are no signs that investment behaviour is likely to change in the near term.

Goldman Sachs Asset Management’s research reveals that investors with financial advisers are more likely to have more diversified portfolios, and profess to have a better understanding of a wider set of asset classes.

Jessica Jones, Managing Director and Head of Third Party Distribution at Goldman Sachs Asset Management for Asia Pacific (ex-Japan), said:

“The survey revealed a clear and concerning disconnect between confidence in the domestic economy, which was low, and confidence in the outlook for domestic equities, which was high. Retail investors appear to be ignoring some important macro themes as they set investment intentions, and in our view the data points to an ongoing lack of meaningful diversification in investment portfolios.

“Of particular concern was the fact that those aged over 65, who should be focused on reducing investments in high-volatility assets, were in fact the most likely to have an allocation to domestic equities. Further, more than 36% of this age group intended to invest more capital in this asset class in the next 12 months. At the same time, less than a quarter of this age group (17%) had direct fixed interest allocations, an asset class which provides important diversification benefits.

“What isn’t clear is what is driving this equities bias. 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.

“The data showed that investors with financial advisers seemed more likely to be invested in a broader range of asset classes. While a domestic equities bias remained, fewer of these investors intended to increase investments in Australian equities, and they were much more likely to have international exposure in their portfolios. This demonstrates the important role that professional advice can play through the cycle.

“It is also interesting to note that investors rated a referral from a trusted source as the single biggest influencing factor in selecting a financial adviser, well ahead of competitive fees. Understanding of the legislative frameworks was also deemed important and the emphasis on this increased with the age of investors surveyed.

“The results of our annual investor survey indicate that financial advisers can play a critical role guiding investors through volatile investment markets, and have a clear opportunity to educate clients on the importance of diversification, particularly for investors approaching retirement.”

Philip Moffitt, Head of Fixed Income Asia Pacific and CEO of Goldman Sachs Asset Management Australia and New Zealand, concluded:

“With the increasing likelihood of further easing of Australian monetary policy, it’s concerning to see the overwhelming majority of Australian retail investors seeking fixed interest exposure purely through cash and term deposits. Cash rates are low and are likely to remain so for the medium term, and we would encourage investors to look for alternative fixed interest exposures, including corporate and sovereign debt.”

For a detail breakdown of findings please refer to the attached overview.