Eight out of 10 financial professionals say the 10-year bull market has made investors complacent about risk, according to a survey by Natixis Investment Management (Natixis IM).
Last year’s market volatility did little to change this, the report states.
“Investors’ misconceptions about risk, volatility and index investing may be clouded by double-digit return targets. Over the past decade, investors have enjoyed large gains in a long bull market with historically low interest rates and relative volatility,” said Matthew Shafer, head of global wholesale at Natixis IM.
“They may have forgotten that index funds have no built-in risk management and are exposed to the same level of risk that’s presented by the markets at large.”
Over 50% of investors worldwide are willing to pay a premium for active management in order to navigate volatility, but confusions about index investing and risk remain.
The report highlights that there are no indexes that an active investment attempts to track – it is up to the effectiveness of the investment manager if the investment is to perform and achieve its objectives.
Nine out of 10 investors believe it is important to protect their assets in volatile times, while 60% say that volatility undermines their ability to achieve savings and investment goals.
The majority of investors believe active management is important to make the most out of short-term market movements, while just under 70% expect their investment funds to have a portfolio that is different to that of an index.
More than half of respondents said that market volatility is leading them to look for investments beyond traditional stocks and bonds.
“Investors don’t seem to fully grasp that pursuing double-digit returns will likely mean investing at the higher end of the risk spectrum,” Shafer said.
“The fundamental disconnect between risk tolerances and return expectations highlights the importance for investors to work with their advisors, to understand the reality of risk and volatility and to be fully equipped to achieve their long-term goals,” he added.
©2019 funds europe
