Cautious investors lean towards domestic equities

Amid continuing economic uncertainty Australian investors remain bullish about domestic equities with a leaning towards the use of exchange traded funds (ETFs), according to the latest research from Investment Trends.

The Investment Trends 2021 Investor Product Needs Report, being released today, reveals investor positivity around equities in the face of concerns about property prices, inflation and interest rates.

The new research shows that the average investor capital gains expectations for the All Ords have oscillated between 0% and 8% over the past 12 months, settling at around 4.3% in July-October 2021 as the market tests all-time highs. Average yield expectations have also risen to 4.3% over the period, up from 3.0%.

Commenting on the findings, Investment Trends Head of Research, Irene Guiamatsia said it showed Australian investors remained strongly bullish on domestic equities despite the dizzying highs reached in 2021.

“More than a third see domestic equities as the number one asset type for generating yield in the current low-rate environment, followed by international equities and property,” she said.

Guiamatsia noted that in line with their optimistic market outlook, investors were less concerned about share market volatility, but increasingly worried about the economic slowdown (47% cite, up from 21% a year ago), property prices (28%, up from 15%), inflation (25%, up from 11%), and interest rates (24%, up from 4%).

The past year had also seen the typical portfolio lighter on cash related investments, direct shares and managed funds, while exposure to property and ETFs had increased.

Guiamatsia said the growth in ETFs and cryptocurrency has been reflected in both higher levels of adoption and larger allocations.

“There is also a strong ESG thematic overlaying these changing trends in investor behaviour – close to one in two investors report considering ESG principles as part of their decision making during the reporting period,” she said. “Looking ahead, investors plan to stick to what they perceive to be the winning formula in their quest for capital growth – direct shares, ETFs and increasingly, cryptocurrencies.”

Guiamatsia said the research suggested investors wanted more detail around past performance and new investment opportunities.