Higher interest rates and inflation are creating a new investment landscape. Schroders Global Investment Study 2023 shows that more than 23,000 people worldwide are adjusting their strategy, as well as responding to the impact of sustainable investment.
A new study by Schroders, a London-based
investment manager, shows that the economic shocks of 2022 had a
profound market impact, with high inflation and interest rates”
powerful new influences on the investment landscape not seen
since the 1990s.
This is a very different environment from when the Global
Investor Study last surveyed people’s thinking in 2022. At that
time, some commentators believed that the disruption was a blip
and predicted a quick return to the benign, low inflation, low
rates environment. This is a new investment regime and 78 per
cent of people recognise this, the survey reveals.
Most people in the 33 locations surveyed have switched strategies
– but around a third have yet to adapt, the firm said. This is
the multitasking challenge of investing in 2023: adjusting to the
new economic reality while seizing opportunities such as
sustainability and private assets.
Schroders commissioned alan.agency and iResearch to conduct the
online survey of more than 23,000 people who invest from 33
locations and territories around the globe, spanning Europe, Asia
and the Americas. The survey was conducted online between May and
July 2023.
Most respondents have adjusted their overall financial strategy
in light of the tougher economic outlook in many regions. Saving
more and spending less is the most popular response, selected by
44 per cent of respondents, the survey shows. But with the higher
cost of living, many are forced to borrow more. This was deemed a
likely choice by 41 per cent of those aged 18 to 37, the survey
shows.
A new investment landscape demands new thinking. With such
changes, more than half say they have adapted their strategies.
They are generally increasing their risk tolerance –
especially younger investors. But this masks differences in
regions, with those in the US adding risk to their portfolio, and
81 per cent reporting that they have increased risk tolerance.
Respondents in Asia are also increasing their risk tolerance on
average, with the proportion saying their risk tolerance is
higher than five years ago at 62 per cent. It is in Europe
(including the UK) where people are cautious, particularly in
Germany and Italy. Across the region, the proportion saying that
their risk tolerance is higher than five years ago is less than
half at 46 per cent, the firm said.
Despite the change in the investment landscape, expectations for
returns have changed little. Asked for realistic
expectations for their return over the next five years, they gave
an annual figure of 11.5 per cent, compared with the 11.4 per
cent in the Global Investor Study 2022, the firm added.
Despite the difficult economic climate, many people remain
enthusiastic about tech: internet and tech stocks were the most
popular investing theme, with 65 per cent of people saying they
have become more attractive over the last six months.
Real estate also remained a strong choice for many investors,
ranked second among thematic investments. The next most popular
investment themes were electric vehicles and sustainability.
Despite the rollercoaster ride of the last few years, investors
remain upbeat – especially those with more knowledge. “In an
investment landscape being increasingly shaped by the ‘3Ds’ of
deglobalization, decarbonization 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,” Johanna Kyrklund, co-head of
investment and group chief investment officer, said.
Sustainability
The survey also shows that people are still increasingly
attracted to sustainable investment. They no longer see
sustainability and high returns as opposites – the number
staying away from sustainable investing because they think it
won’t offer higher returns has fallen by more than half. They
believe that they can have both and continue to be drawn to
sustainable funds, with 55 per cent saying due to the wider
environmental impact, compared with 52 per cent last year.
“The findings of the Global Investor Study 2023 underline the
widespread but growing recognition of the importance of active
ownership to sustainable investment. Companies across industries
face a wide range of challenges and opportunities, and
intensifying pressures to adapt and evolve. As active managers
with a long term and fundamental focus, using our voice and
influence to encourage companies to build healthier, more
sustainable business models has long been important and is
becoming more so as those trends intensify,” Andy Howard,
global head of sustainable investment, said.
Opportunities in private assets
For many years, private assets were an investment only open to
institutional investors such as pension funds and the very
wealthy. That is changing – and people who responded to the
Global Investor Study 2023 are enthusiastic, the firm said. They
see private assets as a way of boosting performance, reducing
risk, and improving sustainability.
Despite difficulties in some regions in investing in private
assets, there were clear preferences for investment, indicating
that they have been paying attention to this type of investment,
the firm said. The top choice: 30 per cent most wanted to invest
in private equity, which includes venture capital and investing
in growth companies. People who rate their investment knowledge
as expert are particularly keen on private equity, with 46 per
cent saying they most want to invest there, the survey shows.
“The range of options to access private markets is widening, and
smaller investors are taking note. They’re looking for every
available tool to achieve their desired outcomes, and private
assets represent a significant number of return drivers. We
believe this is a hugely positive development, and the case for
including a private asset allocation – where appropriate – is
arguably stronger than ever,” Nils Rode, chief investment
officer at Schroders Capital, said.
The research defines “people” as those who will invest at least
€10,000 ($11,000) in the next 12 months and who have changed
their investments within the last 10 years. Due to this
threshold, Schroders acknowledges that the research findings are
not representative of everyone’s experience.
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