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Significant gap between investors’ return expectations and market reality- Legg Mason

Monday, March 04, 2013
Opalesque Industry Update: Investors around the world are receiving annual returns from their income-producing investments that are, on average, almost 3% lower than they desire, according to a major new survey from global asset manager, Legg Mason Global Asset Management.

The survey, which polled over 3,000 respondents across 13 countries, reveals that investors are seeking, on average, an annual investment return of 8.9%, but in reality are receiving 6.1%: a shortfall of 2.8%.

Investors in the UK are among the least unsatisfied, with the ‘reality gap’ standing at just -1.5% (target rate of 7.7% minus an actual rate of 6.2%). US investors, on the other hand, are far more dissatisfied, desiring an annual return of 8.5% but actually receiving 5.9%: a gap of -2.6%. The most dissatisfied investors globally are from Taiwan, where the average return shortfall stands at -4.0% (desired return of 10.0% against an actual rate of 6.0%), while Spanish investors have the largest expectation gap across Europe at -2.9%. Chinese investors have the highest outright return expectations at 10.5% (leaving a -3.4% gap between their preferred return and their actual return of 7.1%).

Investors’ quest for higher yield is evidenced by the fact that 54% of those polled say they are willing to take on more risk to achieve greater investment income. In line with their high return expectations, the investors most likely to move up the risk spectrum for greater yield are Chinese, of whom 77% say they are willing to take on more risk to generate more income. Asian investors generally are, in fact, the most willing to assume more risk for a higher yield, with Singapore (73%) and Hong Kong (63%) completing the top three in the risk table.

Japan, however, is a notable exception, with just 36% of investors saying they are prepared to assume more risk. The UK (55%) and US (51%) rank broadly in the middle of the table while the investors least disposed to take on more risk are from France (29%) and, in line with Japan, Germany (36%).

While the survey suggests the majority of yield-seeking investors generally are willing to assume more risk, it also finds that 54% of investors classify themselves as ‘conservative’ when it comes to investing in income generating products. Nonetheless, 69% of investors say income is now important or extremely important to them. Indeed, this emphasis has increased in recent years, with more than half (57%) of respondents saying income is somewhat more important or much more important to them compared to five years ago.

Matt Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management, commented: “There is clearly a significant gap between what investors want in terms of return from their income-generating investments and what they are actually receiving. Indeed, this gap is likely to be wider in reality given the disparity between asset class performance over the last 12 months and the return investors believe they are getting from their income-based investments.

“Investors looking to boost their income clearly need to become less cautious if they are to hope to achieve their expectations. But while the majority of investors say they are prepared to do so, the evidence – and the fact more than half still consider themselves to be conservative investors – suggests they are not yet willing to accept more risk for potentially greater reward.”

Legg Mason

Press Release


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