NEW YORK, Nov. 5, 2018 /PRNewswire/ -- Legg Mason,
Inc. (NYSE: LM) Stock markets have climbed upwards for almost 10
years, repeatedly setting record highs in the U.S. and elsewhere,
yet most respondents to the annual Legg Mason Global Investment
Survey (LMGIS) believe equity markets will keep rising.
Almost half of respondents said they plan to increase active
fund allocations over the next five years. The survey also found
that many Millennials feel pain from the Global Financial Crisis of
the previous decade, although it is unlikely they had significant
investments at that time.
Among the 1,000 U.S. investors surveyed, each with portfolios
exceeding $50,000, 66% expected U.S.
equity markets to rise over the next 12 months, with 29% predicting
a significant increase. The U.S. was viewed as the best market for
return opportunities, at 73%, despite concerns over health care
costs, trade wars and potentially rising U.S. and global
inflation.
Investor optimism was geographically diversified, with 57% of
respondents believing that global equity markets will also
increase. Europe (excluding the
U.K.) and China followed the U.S.
as favored markets. In terms of asset classes, 42% of respondents
favored domestic stocks, followed by real estate (29%) and
international stocks (26%).
Income is important: 87% of investors reported having
income-producing investments, including dividend stocks (47%),
bonds (22%) and property rentals (13%).
Overall, among the U.S. investors surveyed, 69% said they are
"confident" about their investments over the next 12 months, and
28% reported being "very confident."
"A substantial majority of investors expected the U.S. equity
bull market to continue, coming into October," said Thomas K. Hoops, Legg Mason's Head of Business
Development. "For the most part, this enthusiasm reflected
investors feeling good about today – and who could blame them?"
"With a decade of rising stock prices, higher GDP growth,
historic lows in unemployment and lower taxes, current conditions
in the U.S. are very strong," Mr. Hoops added. "While much has been
written about increasing trade tensions, rising U.S. interest rates
and slowing global growth, retail investors seemed to be looking
past the wall of worry."
"The question is, what will they do now that markets have shown
signs of volatility?"
ALLOCATIONS DIVERSE BUT FAVOR EQUITIES
When it comes to overall portfolio allocations, survey
respondents (whose average age is 53) reported owning:
- 27.6% equities
- 22.2% cash
- 21.2% fixed income
- 12.6% real estate
- 10.7% alternatives
- 5.7% gold/metals
It is worth noting that not one investor – 0% – reported owning
crypto-currencies. This is the first year of the LMGIS that this
option was offered.
"For growth over the long term, equities need to be the dominant
asset in investors' portfolios," said Adam
Petryk, President of Legg Mason affiliate QS Investors.
"However, diversification is critical, particularly as volatility
rises, as we saw in October. Different drivers occur at different
times in different markets, creating a much larger opportunity set.
Growth in the U.S. has been very robust, and the U.S. Federal
Reserve has started tightening. We see opportunity for growth to
expand globally."
"Investors should consider portfolios diversified across the
U.S., developed international markets and emerging markets – and
across low volatility, momentum and value assets."
"We also urge investors to consider lower cash and fixed-income
allocations," Mr. Petryk added. "As rates rise, they should also
consider more flexible fixed-income strategies that have the
ability to manage duration and invest opportunistically. Modest
allocations to real estate that are liquid and diversified, and to
alternatives, can provide low or negative correlations to
traditional assets."
INTERNATIONAL AND EMERGING MARKETS BECKON. WILL U.S.
INVESTORS GO?
Asked what the most important considerations were when making
investment decisions, country or region came in at the very bottom,
at 8%. Investors seeking better growth opportunities could do well
to investigate opportunities outside the U.S. that they do not yet
appear to be considering.
"Investors in the U.S. already have a high exposure to U.S.
equities, yet the survey shows they still favor their home market,"
said Mr. Hoops. "Adding more is not consistent with both their time
horizon and their risk profile. They need to look for both income
and return in places and asset classes that they normally have not
looked. It is incumbent on us to help clients think about taking
different risks, not necessarily more risks."
"Investors also should bear in mind that 75% of global GDP comes
from outside the U.S.," said Elisa
Mazen, Portfolio Manager of the Legg Mason-affiliated
ClearBridge International Growth Fund. "We can access great minds,
technology innovation, attractive demographics, growth rates and
valuations in many regions. This can bring opportunity for
sustainable long-term growth."
"Emerging markets are growing much faster than developed
markets," said Andrew Mathewson,
Portfolio Manager of the Legg Mason-affiliated Martin Currie
Emerging Markets Fund. "They won't be derailed by one quarter of
poor market performance or weak foreign exchange rates. The rise of
human capital, urbanization and reform are long-term trends. There
has been huge improvement in the quality of emerging market asset
classes over the last decade."
INVESTORS TIP BALANCE TO ACTIVE OVER PASSIVE
Despite an almost straight line move upward in U.S. equity
markets for the past decade, actively-managed funds remain a key
component in investors' current portfolios: 58% reported being
invested in active funds. Millennials report the highest allocation
to active strategies (60%).
Almost half of respondents (47%) say they plan to increase
allocations over the next five years to active funds, while only
39% will increase allocations to passive. Those more likely to
invest in active include 74% of Millennials, 64% of Gen X, and 58%
of self-identified "expert" investors.
"Well-chosen active products have the potential to deliver
strong value for investors, particularly in high active share,
small caps, international, emerging markets, alternatives and
global fixed income – all increasingly important investment areas,"
Mr. Hoops observed.
MILLENNIALS REPORT BEING FEARFUL
One surprising finding of the LMGIS is that many Millennials
still feel pain from the Global Financial Crisis: 56% said their
decision-making remains affected by that period. They are less
invested in equities (17.9% of portfolios) and more in cash (25.4%)
than other cohorts.
"Millennials came of age during the Financial Crisis," Mr. Hoops
said. "Even if they were not deeply invested then, they faced
difficult job markets and limited opportunities. If they can get
past their fears, owing to their age, they are well-positioned to
meet their long-term investment needs."
"Given their conservative nature, Millennials could consider
diversification and down-side risk management to avoid emotional
over-reactions to the all-too-inevitable market dips, and stay the
course for the long-term," he added. "They should consider going
outside their home markets, finding proven long-term managers and
consider putting part of their equity allocations in low-volatility
strategies."
About the 2018 Legg Mason Global Investment Survey
The sixth annual Legg Mason Global Investment Survey was
conducted by Research Plus Ltd. among 1,000 U.S. investors who plan
to invest a minimum of $50,000 in the
next 12 months. Fieldwork was conducted via an online survey
between July 26 and August 24, 2018.
To learn more about the survey findings, go to
https://www.leggmason.com/global/campaigns/gis-2018.html.
About Legg Mason
Guided by a mission of Investing to Improve Lives,™
Legg Mason helps investors globally achieve better financial
outcomes by expanding choice across investment strategies, vehicles
and investor access through independent investment managers with
diverse expertise in equity, fixed income, alternative and
liquidity investments. Legg Mason's assets under management are
$755 billion as of September 30, 2018. To learn more, visit our
website, our newsroom, or follow us on LinkedIn, Twitter, or
Facebook.
*Due to rounding, asset allocation percentages might not equal
100%.
All investments involve risk, including loss of principal.
Fixed-income securities involve interest rate, credit, inflation
and reinvestment risks; and possible loss of principal. As interest
rates rise, the value of fixed income securities falls.
International investments are subject to special risks including
currency fluctuations, social, economic and political
uncertainties, which could increase volatility. These risks are
magnified in emerging markets.
Diversification and active management do not assure a profit or
protect against market loss.
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SOURCE Legg Mason, Inc.