Savers forced to reconsider their investment strategies amid inflation and geopolitical uncertainties
Investors globally have been forced to re-evaluate their investment strategies in response to the new economic reality and ongoing inflation and geopolitical uncertainty, Schroders Global Investor Study 2023[1] has found.
Schroders’ flagship study which has surveyed over 23,000 people who invest from 33 locations globally, has identified that almost 80% of investors now believe that we have entered a new era of policy and market behaviour as a result of higher inflation and interest rates.
This is in stark contrast to last year’s study, when some respondents believed the market challenges to be a blip and predicted a quick return to the more benign, low inflation, low rates environment. As a result, more than half have already adjusted their investment strategies and a third intend to do so.
Our research shows people who rated their investment knowledge as ‘expert’ were the quickest to react with 77% having already adapted their strategy, while over a third (37%) who rated their investment knowledge as ‘beginner’- were yet to do so.
Our study also highlights the importance of active fund management for many investors, while private assets were recognised as an essential diversifying tool with the democratisation trend continuing to gather pace.
The vast majority of investors however remain optimistic, with almost 90% expecting returns to be either identical to or higher than last year.
This was particularly the case amongst ‘expert’ investors, with only 4% expecting next year’s returns to be lower.
Strikingly, the majority of investors expected annual returns of 11.5%, similar to last year’s results. Specifically, South African investors were the most optimistic, having identified a 16.8% return. This is substantially higher than the 9.46% annualised return of the MSCI World Index of global stocks between 1987 and September 2023.
Wim Nagler, Head of Insurance EMEA at Schroders, said:
“In an investment landscape being increasingly shaped by the ‘3Ds’ of deglobalisation, decarbonisation and demographics, investors are still getting used to the fact that higher inflation and higher interest rates are here to stay. Every asset has had to reprice to compete with a yield on cash in the bank. Valuation matters once again. Compared to the last 15 years, you may now need to be more flexible and active in the way you invest. The results of the study show that some investors are adjusting quicker than others.”
Private assets as a hedge in a rocky economic environment
In recent years, regulators and asset managers have been actively working on democratising private assets, notably with the launch of structures such as LTAFs in the UK or ELTIFs in Europe.
However, two-thirds of investors still have limited knowledge of the asset class, indicating greater education is required to support the continued growth of these investments.
Furthermore, almost two-thirds of investors (63%) also highlighted that the illiquid nature of these assets and the required longer holding period was acting as a barrier to investment.
Nevertheless, on average, investors admitted they would consider allocating 16.4% of their funds into private assets. For more ‘expert’ investors, this rose to 23.1%.
Specifically, close to a third (30%) are most attracted to investing in private equity. Again, for ‘expert’ investors this rose considerably with 46% saying they most want to invest in private equity.
Real estate was the second most popular asset class, while infrastructure and renewable energy ranked third.
Overall, private assets are viewed as an important diversification tool and a way to boost portfolio performance by half of the respondents (respectively 51% and 56%).
Interestingly, two-fifths of investors are also attracted by the perceived sustainability credentials of private assets.
Wim Nagler, Head of Insurance EMEA at Schroders, said:
“A few years ago, a typical private assets investor would have been what asset managers call “institutional”. These are big investors like defined benefit pension schemes, or large endowment funds. As this year’s GIS shows, the picture is likely to change a lot in the next few years.
“The range of options to access private markets is widening, and smaller investors are taking note. It’s a challenging time to be interpreting markets, and investors are looking for every available tool to achieve their desired outcomes. Private assets represent an incredibly varied set of opportunities, and a huge number of return drivers.
“We believe the widening of options for smaller investors is a very positive development. We also believe that the case for including a private asset allocation – where appropriate - is arguably stronger than ever.”
Sustainable investment: time to engage
Investors are attracted to investing sustainably because of the potential to generate positive environmental impact and align investments to their societal principles.
Importantly, more than a third of investors (34%) said that sustainable funds are likely to offer higher returns. Furthermore, the proportion of investors shunning sustainable investing due to performance concerns has fallen by half compared with last year’s survey.
A key element of sustainable investing is active ownership - engaging with companies directly to improve business outcomes with the ultimate aim of supporting investment returns. The vast majority of people (83%) recognise and support the concept of active ownership, with this view growing in strength among the more experienced investors.
Specifically, the key topics on which investors want to see active engagement are with regards to the climate, natural capital and the treatment of workers.
Wim Nagler, Head of Insurance EMEA at Schroders, said:
“This year’s results underline the widespread and growing recognition of the importance of active ownership to sustainable investment. Companies across industries face a wide range of challenges and opportunities, and intensifying pressures to adapt and evolve. As active managers with a long term and fundamental focus, using our voice and influence to encourage companies to build healthier, more sustainable business models has long been important and is becoming more so as those trends intensify.”
For much information about the Global Investor Study 2023 and to view the full report and findings in more detail, please click here below:
[1] Between 26 May and 31 July 2023, Schroders commissioned an independent online survey of over 23,000 people who invest from 33 locations around the globe. This spanned countries across Europe, Asia, the Americas and more. This research defines people as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years. Due to this threshold, Schroders acknowledges that this group and therefore the research findings are not representative of everyone’s experience.
Note: Figures in this document may not add up to 100 per cent due to rounding and multi-select options.