Financial planners in Australia are the least confident they have ever been about domestic stocks, so are increasing their overseas equity exposure, most notably to Asia and the US, according to a new survey.
And they are putting a greater portion of client money into foreign equities and a smaller portion into overseas bonds and other assets than they did last year, found Investment Trends' 2015 Adviser Product Needs and Marketing Needs Report*.
The good news for asset managers is that planners largely make their stock allocations through funds, and are increasingly doing so through exchange-traded funds.
As of August 2015, Australian financial planners expected domestic stocks to deliver capital gains of only 6% on average over the coming 12 months, down from 8% in the 2014 study.
As a result, planners, always advocates for global exposure, have been able to increase their allocation to overseas assets, from 26% of new client flows in 2011 and 2012 to 39% today.
Financial planners are most interested in gaining multi-region exposure for their clients, with 63% saying they will use funds covering multiple regions in the future, but this is down from 70% last year.
However, significantly more players this year say they will recommend stand-alone US exposure (38%, up from 28% in 2014) and stand-alone Asia exposure including Japan (35%, up from 26%). They are more interested in broad Asia exposure than individual countries, said Recep Peker, head of research for wealth management at Investment Trends.
Meanwhile, their appetite for emerging markets and Brics as categories is falling. “Only a few financial planners are currently interested in the B and the R in Brics,” Peker told AsianInvestor.
Planners get 80% of their overseas exposure through equities – chiefly via equity funds (unlisted managed funds or mutual funds), increasingly through ETFs (9% now, up from 5% in 2012) and a small proportion by directly buying shares. Meanwhile, 16% of their exposure is gained via fixed income/bonds (down from 24% in 2012) and the remainder is in property and other assets.
The major shift into foreign assets comes off the back of a rising trend over the past three years or so, said Peker. “Australian investors were turned off overseas investing after the financial crisis, gradually becoming more underexposed to these assets. In late 2012 they began to realise the significant growth in overseas markets, notably in the US, that they had missed out on, which rekindled their interest in overseas investing.”
The current bearishness on Australian stocks comes amid heightened volatility due to a number of factors. The main concern of investors for some months has been the negative impact of China's slowdown on the Australian economy, noted Peker. “Many are also worried about another financial crisis; other concerns include rising debt levels in Australia.
“Financial planners’ return expectations are at the lowest level we’ve ever observed,” he added. “Even lower than during the depths of the global financial crisis in late 2008.”
The Investment Trends report also found that recent volatility has meant that performance is playing a smaller role in driving planner selection of fund managers and planner satisfaction with their preferred fund manager than in 2014. Instead, frequency of communication and adviser support have become more important.
The biggest beneficiary among fund houses of the recent trend was Vanguard, which has taken the lead as Australian planners’ most-used manager, benefiting from record flows into index funds and recent product launches. Colonial First State was in second place, and Magellan climbed to rank equal third with Platinum.
*This year's survey of 676 financial planners was conducted in August.