Investors forecast returns of 9.9% – millennials expect more

Doug Abbott, Country Head, South Africa, Schroders

A major global study conducted by Schroders has found investors expect their portfolios to return nearly 10% annually over the next five years.

Investors expect annual returns of 9.9% over the next five years, according to a major new global study.

Regionally, returns expectations were highest in Asia, at 11.8%. In the Americas, investors expected 10.2% and the figure was lowest in Europe at 8.6%.

The returns, based on the average expectation of more than 22,000 investors, include growth in their money as well as any income paid out in the form of dividends and interest from a variety of investments including cash, bonds, property funds and equities.

The expectations were tempered slightly from the 2017 study when the forecast was for 10.2% a year.

The findings were part of the Schroders Global Investor Study (GIS) 2018, which measured the views of investors in 30 countries.

Investors’ expectations follow a particularly strong spell for equities in particular and echo returns achieved by global stock markets in the past five years. The MSCI World Index, for instance, has returned 12.2% a year since 2013. The historic performance of markets does not offer a guide to future returns.

At a country level, investors in Indonesia on average expect the highest returns, at 16.8% a year. Expectations in other emerging countries were also high, with investors in Brazil, China, Thailand and India all looking for average annual returns in excess of 13% between now and 2023. South Africa was not far behind with expectations of 12.8%.

US investors expect annual returns of 8.5% over the next five years. In Europe, Russian investors expect the most at 13.0%. However, the region as a whole expects a much lower return, with an expectation of 7.0% in Belgium being the lowest (regionally and worldwide).

A full list of countries and their average expected annual investment returns over the next five years, compared to returns just for stock markets over the last five years can be found at schroders.co.za.

We have focused on equities because of the higher risk and potentially higher returns. Doing so underlines the level of optimism among investors, given their expectations are based on a portfolio of mixed investments and savings, which may deliver lower returns. The average investor holds 33% in equities, 18% in bonds, 25% in cash, 12% in property funds and 11% in alternative investments.

Investors’ overall return expectations easily exceed even the buoyant stock market returns achieved in most countries over the past five years.

‘Expert’ investors expect even higher returns Investors who judged their level of investment knowledge to be ‘advanced/expert’ expect returns of 10.9% a year, over the next five years.

Investors who consider their level of investment knowledge to be beginner/rudimentary expect a more modest 8.8%. ‘Intermediate’ investors expect 9.7%.

How age affects expectations

Younger generations had bolder expectations for their investments. Millennials, defined in this study as those aged between 18 and 36, believed they would get an annual return of 11.0% over the next five years.

The expectations stepped down with each generation: Generation X (age 37 to 50) expected 10.0%; Baby Boomers (age 51 to 70) expected 8.8%; those aged 71 and over were expecting annual returns of 7.1%.

What do analysts predict for future returns?

Returns are notoriously difficult to predict but Schroders Multi-Asset investment team forecasts suggest a 5.6% return for global equites over the next 10 years. Forecasts, of course, should not be relied on for financial planning. In fact, the high return expectations may raise concerns among financial planners.

The study also showed that the top reason for saving was to have a comfortable life during retirement. Those plans could unravel if returns are lower than expected.

Find out more at schroders.co.za

Important Information: For professional investors and advisers only. The material is not suitable for retail clients. We define ‘Professional investors’ as those who have the appropriate expertise and knowledge e.g. asset managers, distributors and financial intermediaries. Schroders Investment Management Ltd is an authorised financial services provider FSP No: 48998, registration number: 01893220

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