Eastspring Investments has completed its first mutual fund investor behaviour study and launched an index designed to forecast asset allocation over the coming six months in Asia.

Eastspring, the Asian funds arm of UK insurer Prudential, surveyed more than 1,501 retail investors in Hong Kong, Korea, Malaysia, Singapore and Taiwan in July. It has compiled the information to form what it calls the Growth and Income Index, which will be released annually.

While Asian bond and Asian high-yield dividend equity mutual funds are the current strategies of choice for the region’s retail investors, notes the study, they are likely to shift out of these into multi-asset, equity and high-yield funds in the next six months.

The forecast move out of bonds is seen as most likely to come as a result of the US Federal Reserve’s plans to taper its quantitative easing programme.

The survey suggests a renewed sense of confidence in equity markets among regional retail investors, although there was a slight drop in confidence in real estate assets in markets such as Hong Kong, Malaysia and Singapore. Those surveyed cited inflation as a chief concern, ahead of worries over a China slowdown and uncertainty in the eurozone.

Regional penetration by mutual funds is still low at $1.9 trillion, says Eastspring. And while 60% of the world’s population live in Asia, Asian investors’ investments only account for 13% of total global assets under management, according to a March 2012 report from consulting firm PwC.

“Nearly one in two households in the US are invested in mutual funds, whereas it’s less than one in five in Asia,” says Guy Strapp, CEO of Eastspring. “Hopefully there will be a pickup, [because at the moment] they aren’t prepared for retirement.”

Regional retirement provision is certainly limited. There are no 401K plans or superannuation funds, and even Hong Kong’s Mandatory Provident Fund and Singapore’s Central Provident Fund have limitations in terms of caps, adds Strapp.

“Aside from them, it falls to central governments to provide a safety net,” he tells AsianInvestor, “and I think governments will, over time, encourage more investment into mutual funds, maybe through tax schemes or other incentives.”

Much of this growth will come from Southeast Asia, Strapp says, noting that two-thirds of Eastspring’s investors are from North Asia and one-third from Southeast Asia. “That will become more balanced over time and eventually skew towards Southeast Asia,” he adds.

“The important thing [is that] you have entire populations in countries that haven’t even started to think about mutual funds. And here you’ve got Christmas tree-shaped demographics, which you don’t have in North Asia.”

Investor education is essential. Alvin Chiu, head of marketing at Eastspring, says the findings raised the question of whether regional retail investors really understand their investments.

“As investors continue searching for yield through different income products, it is critical for them to understand the risks involved,” Chiu says. “The study revealed there is a need for investor education, with only 21% of income fund investors claiming that they understand the risks involved in their income fund investments.”

Further, 46% of those surveyed incorrectly said that all bond funds are similar and offer low risk.