A survey by PM Capital shows investors struggle to take a long-term approach to meet their expectations, while also having a very optimistic view towards global equity markets.
PM Capital has surveyed 214 financial advisers at a series of investment forums events in Sydney, Melbourne, Brisbane, Adelaide and Perth, representing thousands of end investors.
According to the survey, only 15% of financial advisers say their typical client considers a long-term investment horizon to be over 10 years, while nearly two thirds (64%) cite five to 10 years as the time frame horizon for long-term goals.
At the same time, more than 60% of respondents think global equity markets will be 10-20% higher two years from now.
Australians are one of the longest living populations in the world with average age expectancy currently 80.9 years for men and 84.8 for women, according to the World Health Organisation.
PM Capital’s founder and Chief Investment Officer, Paul Moore, said investors’ relatively optimistic near term expectations combined with investment horizons that may be inconsistent with life expectancy in retirement, risked resulting in unfulfilled financial goals.
Mr Moore said: “Equity markets in general have delivered strong investment returns over the past five to eight years. Passive investing has produced adequate returns over this period and investors are betting this will continue. However, with the secular reduction in interest rates in developed markets over the past 30 years coming to an end, we think select stock picking is going to be more important than ever to generate acceptable returns.
“Australians need multi-decade funding to have a financially secure retirement. Their objectives are most likely going to be achieved by extending their investment horizon and finding a means to invest in a selectively picked portfolio of companies likely to deliver strong earnings growth. With this mindset, investors are able to look pass any short-term price fluctuations on their path to retirement goals.
“Passive investing is not going to do the job. Passive asset allocation – a combination of cash, bonds and property – is going to give investors future returns of 2% to 3% at best. Passive investment in equities may give you 4% to 6% - not enough for retirees to meet their objectives. That's why we believe investors need credible, high-conviction fund managers.
“Investors need to look away from the crowd, to do something different, to search for market anomalies, to improve the likely returns from equities over the long term,” Mr Moore said.
With the aim to build long term wealth, PM Capital manages both equity and fixed income portfolios by using a focused, patient and considered approach to find simple investment ideas. The recommended investment period for its equity funds is 7+ years.
The survey also found that more than 75% of investor clients are not looking to change their asset allocation.
As at September 2016, SMSFs held 30% fund assets in direct Australian shares, 25% in cash and term deposits, and 15% in direct Australian property according to the ATO. The remaining 30% of SMSF assets were held in trusts and other managed investments, as well as 12 other categories.