Investors Staying Put - BlackRock Survey

Harriet Davies

15 June 2012

Investors are holding fast with their portfolios, with only around 11 per cent making changes in what they describe as “uncertain” markets, according to a survey from BlackRock.

Over half of investors in the survey described markets as “uncertain” but the proportion who were making changes to their portfolios to cope with them fell from 21 per cent six months ago to 11 per cent in May.

Meanwhile, uncertainty about where to invest is causing investors to hold onto cash. Investors also cited a “poor investment environment” as another reason they are sitting on cash.

“However, many investors don’t realize that when you factor in inflation, staying in cash can lead to a deccumulation of assets rather than accumulation of assets over time,” said Frank Porcelli, head of BlackRock’s US retail business.

No clear trend emerged from the survey about where investors were moving assets: roughly equal numbers were moving into and out of equities overall , as well as emerging markets and alternative investments .

Knowledge gaps

Many investor respondents said that investing for income had become “riskier” over the last five years and that they find it hard to evaluate non-domestic income assets. Advisors meanwhile said that clients tended to think “investing for income” meant “bonds,” according to the advisor survey, and 60 per cent said “clients understand very little about investing for income.”

The same proportion of investors also said non-traditional asset classes, or alternatives, were “too risky” and nearly half said they were more suitable for sophisticated investors. The majority of investors who didn’t hold alternatives already aren’t planning to add them to their portfolios over the next 12 months as a result.

“Our poll tells us that investors still need plenty of fundamental support and direction in adjusting to a new world,” said Porcelli.

Retirement concerns

Advisors said that longevity of savings, market volatility and severely decreased portfolios were causing people to work longer and reduce their lifestyle expectations. Nearly half of investors are pushing back their retirement date, according to the survey, and many are concerned about providing education for their children and other dependents.

Inflation risk

Most advisor respondents believe the rate of inflation will increase over time. Despite this, most investors are “not focused” on inflation.

“Inflation is harder to notice on a one-, two-, or three-year basis, but our research has shown that inflation of just 3 per cent can reduce the purchasing power of a portfolio by 50 per cent over a 25-year time frame,” said Porcelli.