Property is Investors' Favourite Asset Class Amid Market Turmoil

How have investors reacted to recent market volatility? We reveal their worries with concrete statistics and possible tactics to regain their confidence

Karen Kwok 18 February, 2016 | 11:14AM
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Investor confidence dropped to the lowest level in nearly three years, hurt by worries over the ongoing market turmoil, according to the latest Lloyds Bank Investor Sentiment Index.

Confidence in UK equities saw the largest fall, tumbling from 13.3% to 6.4%, the lowest level since the Index began. Investor confidence in domestic stocks was much higher in February last year at 29.1%.

US shares also face a drop in investor sentiment, from 5.8% last year to -0.80%, their lowest level since November 2013. In February 2015, sentiment towards US equities was 17.5%. UK corporate bonds have also fallen from favour, dropping more than four percentage points in a month.

There are good reasons behind investors’ negative outlook. Since the beginning of the year, the FTSE 100 has fallen; billions of pounds have been written off the blue-chip index. The US stock market has also been volatile amid doubts over the Chinese economic outlook and the tumbling low oil price.

According to State Street Global Investors, their most recent Confidence Index was also negative – down 1.7 points to 108.8 in January when compare to December’s reading.

"We have seen an unprecedented slide in stock markets around the globe,” commented Jessica Donohue, of State Street Global Exchange last month. “Tumbling oil prices, a reaction to slowing demand in the face of a supply glut, and changing growth dynamics in China chipped away at investors' confidence over the past month.”

The significant fall in investor sentiment this year could also be due to political uncertainty in the UK; the debate over whether or not the UK will exit the European Union is on-going.

Rumblings from both the Federal Reserve and the Bank of England about whether to raise interest rates, while central banks in Japan, Europe and emerging markets diverge, seeking to cut rates, adding market pressure.

Confidence is Tumbling Despite Growth

Investors’ sentiment does not always replicate the real market performance however.  Some investors are adopting an increasingly negative attitude towards lower risk assets, such as government bonds, even though the asset class has posted positive gains in the last month, according to Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking.

“Government bonds have gained 3.4% over the past six months, making it the top-performing asset class over this period. However, investor sentiment has not reflected this, with confidence in government bonds dropping by 3.87% this month, following a fall of 4.08% in January,” Stadlmann said. “This shows the current levels of uncertainty among investors.”

Gold Shines For Anxious Investors 

Not all asset classes fell short of investor confidence. The gold price has rallied significantly over the past month, and this has been reflected in investor sentiment rising by 8.57% from January to February. In 2016, gold has over-taken UK equities as the second-most favourable asset class behind UK property.

Despite a slightly drop over two percentage points, UK property remains investors’ favourite asset class with a confidence score of 48.6% in February.

The Lloyds Bank Private Banking Investors Sentiment Index is based on a survey carried out with investors in the UK, showing the different between those who hold a positive view or negative view each month on the outlook on various asset classes investment over the next six months. The index covers equities across the developed markets and emerging markets, UK government and corporate bonds, and alternatives such as UK property, gold and commodities. 

How to Restore Investor Confidence

Investors crave assets that show strong performance, for sure, but they also demand transparency and communications from financial professionals, a study taken by the CFA Institute reveals.

The majority of both retail and institutional investors cited underperformance as the biggest factor that would lead them to switch firms. This was followed by increases in fees, a confidentiality breach and a lack of communication according to the global survey.

 “Performance is no longer the only deal breaker for investors,” said Paul Smith, president of CFA Institute. “They are continuing to demand more clarity from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before. Further, if investment professionals don’t provide this clarity, then regulators may force them to, for better or worse.”

Investors want regular, clear communications about fees and upfront conversations about conflicts of interest, the survey found. It also revealed that the biggest gaps between investor expectations and reality related to fees and performance.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk