EU investors expect five-year returns of 9.4% despite Covid-19: Schroders

On the 08/06/20 at 10:36AM


Adrien Paredes-Vanheule

Only 6% of the 23,000 investors surveyed globally by the British asset manager think Covid-19’s negative economic impact will last for more than four years.

Global investors remain very optimistic as to their average annual five-year returns despite low interest rates and the Covid-19 pandemic. According to a survey carried out last April by British asset management firm Schroders towards 23,000 investors from 32 locations, investors await up to 10.92% returns over the next five years, which is 1.02% more than expected two years ago and 0.22% up year-on-year.

US-based clients are expecting the highest five-year returns (15.4%) before Indonesians (14.8%) and Argentinians (14.6%). From a regional standpoint, investors located in the Americas believe their average five-year returns will reach 13.2% against 11.5% for those based in Asia. European investors as a whole are far less optimistic as they foresee average annual returns of 9.4% over the next five years. Nevertheless, Schroders highlights that European countries are split into two camps. Most enthusiastic investors across Europe regarding yields could be found Poland (five-year returns of 11.19% expected), the UK (11.08%) and Portugal (10.66%) whilst Austria (8.04%), Italy (7.93%) and Switzerland (6.96%) are home to the most pessimistic. They’re only beaten by Japanese investors, expecting a 5.96% annual average five-year return.

“Our results show that 80% of people are still basing their predictions on the returns they have received in the past, with a decade of strong returns potentially inflating people’s expectations to unrealistic levels. 67% of people corroborate their expectation of lower returns over the next five years, stating that they believed this to be the case even before the onset of the pandemic.

“A small majority (62%) are basing their expected returns on current interest rates, unsurprising considering the Federal Reserve has vowed to keep rates low. However, this is somewhat revealing when you consider that the expected return is still higher than such low interest rates would traditionally allow,” Schroders flags in its research.

Covid-19 will have limited impact, global investors believe

Though, the survey suggests that investors have lowered their income expectations, with 8.8% expected to be achieved over the coming 12 months, compared with 10.3% a year ago. The British manager assesses that what drives such optimism from global investors is that only 6% of them think Covid-19’s negative economic impact will last for more than four years whereas 66% of the investors surveyed said it will last between six months to two years and 15% up to four years. 2% of the participants answered there is no negative impact from the pandemic.

When asked what changes they made to investment portfolio during February and March 2020, 28% of the investors surveyed said they moved a “significant proportion” of their portfolio to lower risk investments. A further 25% said they moved some of their portfolio to lower risk investments. But 20% of them went the opposite way by moving part of their portfolio to high-risk investments. Lastly, 19% said they opted to do nothing and stuck with their investments as they were.

“Furthermore, it was older generations who appeared to remain calm amid the market volatility caused by Covid-19. Over three-quarters (75%) of those aged 71 or older either moved their portfolio but maintained the same level of risk or opted not to make any changes. This compared to just 23% of millennials,” notes Schroders.