Investors go active to manage risk
Around three-quarters of investors globally believe it’s important to beat the benchmark, and that it’s preferable to have an expert find the best opportunities in the market, according to new research from Natixis Investment Managers.
The research found that just over half of global investors said they would take risk to get ahead, but 60 per cent worried that market volatility undermines their ability to reach their investment goals.
Louise Watson, managing director of Natixis IM in Australia, said the results revealed that while investors understood they needed active investment to reach their financial goals, they continued to prefer perceived safety over performance, and could be unwilling to pay what can appear to be higher fees for active management.
And, the survey showed that Australian investors in particular stressed about fees, with half of investors deciding low fees were “very important”, as opposed to 38 per cent of global investors.
It was also revealed that over half of Australian investors thought index funds were less risky, and 71 per cent thought they could minimise losses, but they also thought it was important to beat the benchmark, and to find an expert to do so.
The research also found that Australian investors were expecting around a 10.1 per cent return per annum, but professionals said they should expect no more than 6.4 per cent.
“It’s not out of line with international investors however, most of whom have expectations which professionals agree will be difficult to attain, particularly without active management and managing risk,” said Watson.
Money Management, using FE Analytics, looked at the returns of the five FE Crown-rated fund and consistent top-performer, the DDH Selector Australian Equities fund, and found that across three years, it returned 11.47 per cent and 8.25 per cent across the year to date.
The State Street Global Advisors SPDR S&P ASX 200, which aims to match the performance of the S&P ASX 200 index, achieved 7.61 per cent for the three years to date and -0.37 per cent for the year to date.
The DDH fund charges a management fee of 1.90 per cent, and the passive fund charges a fee of 0.19 per cent, but the active fund probably meets investors’ expectations in terms of the returns they’re after per annum.
And, investors who thought passive funds were less risky would be interested to know that the volatility of the DDH Selector Australian Equities fund was 13.22 per cent for the three years to date, while the volatility of the State Street index tracker was 12.18 per cent, which isn’t a great risk-return ratio.
The chart below shows the performance of the two funds and the S&P ASX 200 index across the three years to date.
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