A global fund manager has suggested investors should be expecting only low single digit returns from their equity allocations over the coming year.
“If you have no tolerance for negative return, such as someone who likes TDs (term deposits) and pretty low risk investments, a reasonable return expectation is probably somewhere in the order of 3 to 4 per cent [per annum] and that’s probably a real return of 2 to 3 per cent,” Schroders head of fixed income and multi-asset Australia Simon Doyle said.
“If you have a three to five year time frame and accept some variable returns, and you’re prepared to adopt a more flexible approach, I still think somewhere in the order of 5 per cent real return, but the risks [would be higher],” he added.
“If you’re someone who wants to sit in the traditional type of portfolio, with fixed allocation to equities and bonds, I actually think your return expectations will probably be lower than that.”
These suggested returns are much lower than the expectations of investors around the world as revealed by an independent online survey conducted in April and May this year, commissioned by Schroders and carried out by Research Plus.
The study showed of the 25,000 investors surveyed one in six expected at least an annual return of 20 per cent. On a geographical basis, US investors had the highest return expectations of 12.4 per cent, with Australian investors expecting returns of 10.4 per cent, and European investors anticipating a return of 9 per cent.
Schroders chief executive Chris Durack pointed out historical data suggests expectations of double-digit returns would only lead to investor disappointment.
“The Australian stock market has produced a real return over say 100 odd years between 6 and 7 per cent and that’s if you were [100 per cent] invested in the stock market over the last century,” Durack said.
“This is similar for the US so if you’re inclined to think equities are a risky investment the average return you get for that risky investment, over a very long period of time, is less than what people are expecting in that global investor survey.”