Investors are now more inclined to turn to financial advisers to find answers due to the turbulent markets with high inflation and rising interest rates, the Schroders Global Investor Study 2022 has found.
Schroders surveyed more than 23,000 investors from 33 locations globally and discovered that 39% are more likely to speak with a financial adviser as interest rates continue to rise.
Additionally, investors who defined themselves as more knowledgeable were also more likely to turn to the expertise of an active manager compared with six months ago. For example, some 63% of ‘expert’ investors and 51% of ‘advanced’ investors found active funds more attractive.
This is particularly the case for two thirds of ‘expert’ investors (63%) who acknowledged the added value of an active fund manager in challenging times.
But despite the current negative economic climate, the survey found people globally are still expecting improved investment performance.
Investors are anticipating returns of 11.37%, compared with 11.31% in 2021. While still an improvement on the previous year, this increase of 0.06 percentage points was the smallest recorded since 2018.
Indeed, the average growth rate of investor expectations since 2017 has been 0.23 percentage points evidencing that, as inflation and interest rates have started to rise, people’s return expectations are now growing at a slower rate than previously.
Regional variations in return expectations were also quite pronounced. People in South Africa were particularly optimistic, expecting returns of 16.05%, most likely driven by the positive performance of their domestic market in 2021.
By contrast, people in Italy and France were more cautious – expecting returns of 9.8% and 9.2%, respectively.
Interestingly, 80% of investors who classified their investment knowledge as ‘expert’ stated they had already made changes to their investment strategies in response to rising inflation. This compared with 55% of people on average.
In contrast, just 29% of self-defined ‘beginner’ and 27% of ‘rudimentary’ investors have changed their investment strategy in light of the inflation challenges.
Focus on diversification
Many investors are looking to exercise caution in response to this more challenging outlook, with 43% being more likely to save more and spend less. A further 42% are looking to increase the amount of diversification within their portfolios.
However, 60% of investors still believed their investments were diversified enough to mitigate the impact of a significant market event.
Government bonds and cash were cited as being the least attractive asset classes by close to a quarter of the respondents (24% and 23% respectively), as appetite falls for assets that may be challenged by higher interest rates.
This was particularly the case in the Americas, where 27% found government bonds less attractive.
On the other hand, 48% found actively managed funds more attractive, demonstrating the importance they give to expert advice in challenging times.
Additionally, private assets were also regarded as more attractive by two-fifths of the respondents, while some 43% of investors also found digital assets more appealing.
Thematic investments have also grown in demand among investors, with 57% keen to allocate to technology. Similarly, sustainability and electric vehicles remained key themes with 52% and 46% of investors respectively finding these more attractive.
Lesley-Ann Morgan, head of multi-asset strategy at Schroders, said: “These are unusual times with inflation in many countries now at its highest level for several decades. There is a danger that investors’ optimism about future returns is based on their experience of recent years, where inflation was in check and the cost of borrowing at record lows. We’re now moving into a new and arguably far more challenging phase.
“For some people, the phenomenon of rising rates and inflation is greatly disconcerting with the results of the Global Investor Study indicating that people of all types of investment experience are keen to seek the advice of experts to help them navigate these challenges.
“Indeed, it is times like these when the expertise and experience of active managers becomes increasingly crucial as investors look to control their investment risk and also diversify. Amid this challenging environment, the study also found that more than half of investors (58%) agree that the performance of their investments has a direct impact on their mental health, further emphasising the critical role active managers and financial advisers have in supporting them.”