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Gap between investor income expectations and actual returns widens

  • 22 April 2014
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Gap between investor income expectations and actual returns widens

Investors around the world have become even more dissatisfied over the last 12 months with the income they receive from their investments, according to a survey from global asset manager, Legg Mason Global Asset Management.

The survey, which polled more than 4,000 investors globally, reveals that investors in the last 12 months were, on average, seeking an annual return of 9.5% from their income investments but received just 6.2%.

The resulting 3.3% shortfall represents an increase of 0.5% over 2013, when this gap stood at 2.8%.

Investors in the UK remain among the least dissatisfied with their income investments, with the ‘reality gap’ standing at just 1.5% as they have a target rate of 6.6%, minus an actual rate of 5.1%

US investors – among the most dissatisfied in Legg Mason’s 2013 survey, have, meanwhile, become notably less unhappy with their level of income in the last 12 months, with a gap of 1.9% (desired rate of 8.3% against an actual rate of 6.4%) versus a previous shortfall of 2.6%.

The most dissatisfied investors globally were from Chile, where the average shortfall stands at 5.2% (desired return of 10.4% against an actual rate of 5.2%). Colombian investors – with the highest outright return expectations at 11.0% – were the next most dissatisfied with an income gap of 4.8%. In Europe, Belgian and Spanish investors were the most disgruntled with a shared 2.9% shortfall, although their income expectations differed significantly (with desired rates of 6.9% and 8.4% respectively).

Investors’ quest for higher returns is evidenced by the fact that 71% of those polled globally said that income generating investments were important or extremely important to them. In line with their high return expectations, the investors most likely to seek higher yielding investments were Colombian, of whom 88% view income investments as a priority. Latin American investors generally, in fact, prioritise investments for a higher yield, with Brazil (85%) and Mexico (83%) completing the top three in the table.

Taiwanese and Swiss investors, however, were notable exceptions in the survey, with just 42% in both countries seeing income investments as a priority. Japanese investors were next (47%) while UK (54%) and US (58%) investors ranked broadly in the middle of the table.

Matt Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management, commenting on the research says: “Income remains key for many investors around the world but it is clear there is a widening gap between their expectations and the income actually produced by their investments.

“While the results vary by country, it is interesting to note that, on an aggregate basis, the gap has increased due to investors’ rising income expectations rather than their investments generating a lower yield. With interest rates forecast to rise in many major markets over the next 12-18 months, this gap may begin to narrow over time, but investors should otherwise consider whether their portfolios have the right mix of income investments to meet their growing yield requirements.”

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