Investors are no longer chasing the highest potential return and instead want to mitigate unrewarded risks, according to
research that also reveals real estate to be an asset class growing in popularity.
Principal Global Investors, which commissioned a study from Create-Research, says risk averseness has caused a “fundamental shift” in the mind-set of investors who now want goal-oriented approaches that diminish unrewarded risk.
The shift is a by-product of a sustained low rate environment and is not just a short-term trend, the asset manager says.
This fundamental change in attitudes can be seen in all four different investor groups: defined benefit (DB) and defined contribution (DC) pension investors; retail investors; and high-net-worth individuals (HNWIs).
DB investors, for example, are turning to real assets and alternative credit because inflation protection and regular income are more important to them than high returns. The popularity of real estate has increased by 26% since 2012 to 2014, while infrastructure popularity has increased by 23%.
Among HNWIs, real estate has become “notably popular” showing an increase of 25% in investors interest since 2012.
Nick Lyster (pictured), European chief executive officer of Principal Global Investors, says investors show greater caution due to the financial crisis.
“In 2013, the quest for yield was evident. In 2014, as caution has become more embedded in the investor psyche, investors have recalibrated their return expectations.”
DC investors continue to favour life-cycle funds, which support the goal of downside protection as they adjust to varying market conditions and the risk-appetite of investors at different times during the market and life cycle. Retail investors are displaying a general acceptance of lower yield and want alpha from solutions rather than from products.
HNWIs have become particularly cautious in developed markets and especially demanding in emerging markets in order to manage unrewarded risk. A preference for active management remains.
The report is entitled Asset allocation: No longer one size fits all.
Professor Amin Rajan, chief executive of Create-Research, says: “While the investment environment remains challenging, investors want two things: low-cost options to meet their perceived needs and assets that can deliver specific goals.” The latter includes capital growth, regular income, inflation protection and capital conservation.
“This is the age of goal-oriented investing,” he adds.
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