Australian investors want to increase their allocation to active management over the next 12 months, according to a new survey from Franklin Templeton Investments.
The research, conducted with a sample size of over 100 attendees at Franklin Templeton’s recent Asia Pacific Investor Forum, concluded that Australian investors and their advisers are paying more attention to active strategies as economic results at home and abroad grow increasingly divergent.
When asked what type of management style they were thinking of increasing allocations to in the next 12 months, 71% of respondents indicated they were considering active management, while just 5% wanted to increase allocations to passive strategies, and 24% indicated they would make no change to their portfolio. Two thirds of respondents (66Franklin T%) also described their risk tolerance as ‘moderately aggressive’, indicating an increasing realisation from investors that an amount of risk in the portfolio is healthy and necessary to increase returns.
The survey also indicated that external market factors such as global economic performance and interest rates are weighing most heavily on investors’ minds when it comes to deciding their portfolio allocations. When asked what they believed was the biggest challenge facing investors today, 32% nominated low interest rates, while a further 32% said an uncertain global economic environment was the biggest challenge. The possibility of increasing interest rates in future was also a potential concern for investors, with 22% nominating this as the biggest challenge.
“The survey data indicates that investors are increasingly turning to active management over a generalist approach to address the challenges of a volatile global economy,” said Franklin Templeton’s Director, Advisory Services, Jim McKay. “As factors like geopolitical risk and the mixed bag of economic results in global markets contribute to investor nerves, there’s a growing realisation that active managers are better placed to take advantage of market inefficiencies and boost overall returns.”
“Interest rates are also a growing concern for a large proportion of investors, as the possibility of rising rates from the US in particular is leading to a re-evaluation of fixed income strategies,” said Mr. McKay.
When asked how investment managers could best address the challenges of current investors, 39% of respondents nominated more ‘outcome-oriented’ strategies as particularly important. A further 26% said they would like to see more options around protecting portfolios from volatility, while 24% said a diversified approach would be the best way to tackle the challenges ahead.
“In a post-GFC environment, we are seeing investor preferences move towards a more tailored approach – the appetite is towards funds with distinctive styles and sophisticated strategies when it comes to aspects like risk management,” said Mr. McKay. “These are not options that investors can easily access as a part of passive strategies, so there is clearly a realisation that the singular pursuit of ‘low cost’ investment vehicles is not the best way to add overall value to a portfolio.”
“By engaging an active manager who is able to use all the resources at their disposal to stay on top of a rapidly evolving global economy, investors are much better placed to achieve enhanced returns and reduced volatility on their investments in the long term.”