Wealth investors globally have been forced to re-evaluate their investment strategies in response to the new economic reality and ongoing inflation and geopolitical uncertainty.
This information is contained in the Schroders Global Investor Study 2023.
Schroders’ flagship study surveyed over 23,000 wealth investors who invest from 33 locations globally, including 400 South Africans.
The report found that almost 80% of investors now believe that we have entered a new era of policy and market behaviour as a result of higher inflation and interest rates.
“This is in stark contrast to last year’s study when some respondents believed the market challenges to be a blip and predicted a quick return to the more benign, low inflation, low rates environment.
“As a result, more than half of global respondents have already adjusted their investment strategies and a third intend to do so. South African wealth investors, while a bit slower to do so, also plan to adjust their strategies,” it said.
The report found that South African respondents who rated their investment knowledge as ‘expert’ were the quickest to react with 60% having already adapted their strategy.
The report highlighted the importance of active fund management for many investors globally, while private assets were recognised as an essential diversifying tool with the democratisation trend continuing to gather pace.
“Interestingly, South Africa showed a heightened interest in digital assets and cryptocurrency as compared to global respondents,” the report said.
Despite an extremely difficult environment, the report found that the vast majority of investors globally remain optimistic, with almost 90% expecting returns to be either identical to or higher than last year.
“This was particularly the case amongst ‘expert’ investors, with only 4% expecting next year’s returns to be lower. Strikingly, the majority of investors globally expected annual returns of 11.5%, similar to last year’s results.
“Specifically, South African investors were the most optimistic, having identified a 16.8% return. This is substantially higher than the 9.46% annualised return of the MSCI World Index of global stocks between 1987 and September 2023,” it said.
Schroders’ Group CIO and Co-Head of Investment Johanna Kyrklund said: “In an investment landscape being increasingly shaped by the ‘3Ds’ of deglobalisation, decarbonisation, and demographics, investors are still getting used to the fact that higher inflation and higher interest rates are here to stay. Every asset has had to reprice to compete with a yield on cash in the bank. Valuation matters once again. Compared to the last 15 years, you may now need to be more flexible and active in the way you invest. The results of the study show that some investors are adjusting quicker than others.”
The report said 70% of South African respondents cited costs and expenses as the largest perceived barrier for the asset class; with transparency (63%) and experience with/knowledge of the asset class (61%) as runners-up.
Global investors were most concerned with transparency (65%), followed by experience with/knowledge of the asset class (64%) and then illiquidity (63%). The findings indicate greater education is required to support the continued growth of these investments, it said.
“Nevertheless, almost 48% of South African respondents said they would consider allocating 6% - 20% of their portfolios to these assets. On average globally, investors admitted they would consider allocating 16.4% of their funds to private assets. For more ‘expert’ investors, this rose to 23.1%.
“Specifically, South African wealth investors are most attracted to real estate (75%) followed by both private equity and infrastructure and renewable energy (64%). Interestingly, global respondents were almost 20% less likely to invest in real estate than South African respondents,” it said.
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