8th April 2013
Fund manager Legg Mason says that many global investors are not investing substantially outside their domestic markets holding just under 20 per cent of their holdings outside their home markets.
The research polled more than 3,000 investors across 13 countries. The fund manager says that income investors globally still have negligible exposure to international markets despite a significant gap between their stated yield requirements and their actual returns¹.
In Europe, the figure for the UK is 21 per cent while Spanish investors are most likely to invest abroad at 27 per cent.
In the US 11 per cent of investors’ income assets are invested abroad – the lowest percentage in the survey – with French investors also low on 13 per cent.
Asian investors are more adventurous. Thirty three per cent of Hong Kong investors’ income assets are invested abroad, followed by Taiwan on 32 per cent, Japan on 29 per cent and Singapore at 27 per cent.
Income investors give a number of reasons for their general avoidance of foreign markets. They say the main barriers to international investing for income are ‘global uncertainty’ at 55 per cent, ‘too much risk’ 46 per cent, ‘currency risk’ at 44 per cent and ‘not enough transparency’ 44 per cent.
Yet sixty-seven per cent say they are more focused on investing for income internationally compared to five years ago. In terms of the markets, they would consider investing, the US is the most popular 81 per cent, followed by China at 68 per cent, emerging markets 63 per cent, the UK 62 per cent and Europe ex. UK 61 per cent. Brazil is less popular at 55 per cent and Japan 52 per cent, India 46 per cent and Russia 40 per cent.
To gain exposure to international income opportunities, the survey found that income investors globally would prefer diversified funds. A majority 60% would opt for a global fund that invests across multiple countries, while just 17 per cent would choose a single country fund. Almost a quarter 23 per cent had no preference.
Matt Schiffman, head of global marketing says: “Investors around the world say they are disappointed with the returns they are getting from their income-producing investments but it is clear they have, on the whole, yet to make a significant move out of their domestic markets in a bid to achieve a more satisfactory yield. Partly this reticence appears to stem from a belief that investing internationally is excessively risky, which, given the well-established benefits of diversification, comes as a surprise and suggests the industry globally has much more to do to educate investors as to the risks of being overexposed to a single market.”
The research also found that investors globally are seeking, on average, an annual investment return of 8.9 per cent, but in reality are receiving 6.1 per cent, a shortfall of 2.8 per cent.
The research conducted by Northstar. http://www.northstarhub.com/ Research carried out between Dec 2012 and Feb 2013