Despite a challenging, fully priced market that could be on the precipice of a fall, local investors are clinging to their recent experience and expect 10.9 per cent returns for the next five years, according to results from a global survey conducted by asset manager Schroders.
“We think there’s a very real risk of disappointment,” said Schroders chief executive Chris Durack at a media briefing in Sydney yesterday.
Global investors expect an annual average return expectation of 10.7 per cent every year for the next half decade, while Australians – part of a minority that didn’t experience a recession after the GFC – are even more optimistic at 10.9 per cent.
One in seven Australians expect a more than 20 per cent return, while slightly more global investors – one in six – expect the same.
An historically long bull run has led to what Durack calls “complacent” investment attitudes. Young investors, especially, are unused to negative or poor returns and pin their expectations accordingly.
Analysts have broadly predicted a decline in returns, or at least a much more moderate short to medium term outlook for investors.
“It’s certainly our view that we’re in a low growth environment, and certainly where we are in the investment cycle and given various market events that are taking place around the world, we do not think it’s unreasonable to expect further market uncertainty and volatility,” said Schroders’ distribution manager, Graeme Mather.
There is a “disconnect” in the market, according to Schroders’ head of fixed income and multi-asset in Australia, Simon Doyle. “Recency effect is driving herding which is likely to exacerbate the gap between what’s delivered in returns and the expectations,” he added.
Mather warned investors’ expectations could run even further unchecked as thousands of advisers leave the industry, which is forecast due to declining revenue, an institutional exodus and the introduction of new education standards.
With less advisers to temper expectations, clients could be more inclined to take on excessive risk in their portfolios, he reckons.
“We are going to see more unadvised investors in the marketplace,” Mather said. “If you’re left to make your own decisions with those expectations then the risk of disappointment could be very real.
“It is a challenging market and it’s going to be difficult for any asset class to return double digits in the next five years”, Mather continued.
Age is a key determinant in investment expectations according to the data, with young people more at risk of taking a hit than older investors that have a broader scope of experience to draw upon.
Millennials have the highest expectations in Australia at 12.9 per cent, while Generation X’ers expect 10.8 per cent and Baby Boomers 9.2 per cent. Investors over 71 expect a total 7.7 per cent return.