Eighty-six percent of affluent U.S. investors were optimistic about investments, according to a Legg Mason survey published this week.
Seventy-four percent of investors thought that U.S. equities offered the best opportunities in 2014.
Respondents were less enthusiastic about international equities, favored by 53% of those surveyed, followed by real estate (38%), gold or other precious metals (33%), U.S. bonds (31%), cash (28%), nontraditional investments (24%) and international bonds (19%).
These were the average asset allocation among affluent investors in the survey:
- 41% equities
- 22% cash or cash equivalents
- 20% fixed income
- 6% investment real estate
- 4% non-traditional investments
- 7% other
Although the majority of investors said they would maintain their asset allocation over the next 12 months, 25% said they would increase their allocation to equities and another 25% said they would increase their allocation to cash.
“There is a promising amount of optimism among U.S. investors, and much of it is focusing on U.S. equities,” Matthew Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management, said in a statement.
“This is consistent with our global research conclusions, and bodes very well for the U.S. equity markets should investor optimism ring true.”
Northstar Research Partners conducted an online survey for Legg Mason in December and January of 4,320 investors with a minimum of $200,000 in assets in 20 countries, including 500 respondents in the U.S.
The survey found women in the U.S. to be more conservative than men in their asset allocations.
Women allocated 38% to equities, versus 43% for men; 24% to cash or cash equivalent, versus 20% for men; and 22% to fixed income, versus men’s 20%.
Legg Mason noted that the equity allocation among investors 65 to 75 years old was greater than that of investors aged 55 to 64, and not far from the equity allocation of investors aged 40 to 54 years of age.
Sources of Anxiety and Opportunity
Forty-four percent of investors in the survey feared that low U.S. economic growth could derail investment markets.
Thirty-six percent worried about the possible deleterious effects of inflation, 34% about low interest rates/yields, 32% about reduced economic stimulus in the U.S. and 31% about an increasing tax burden.
More than three-quarters of respondents said they invested on average 14% of their portfolio internationally. Younger investors, in the 40-to-54 age group, allocated 17% of assets to international investments, while those older than 65 allocated just 10%.
Emerging markets attracted 57% of those who invested internationally, or would consider doing so over the next 12 months.
They said these countries offered the best opportunities:
- U.S. (56%)
- China (47%)
- Japan (29%)
- Brazil (24%)
- Europe, excluding UK (24%)
- India (22%)
- Latin America, excluding Mexico (20%)
Legg Mason found that the role of income continued to be an important component of investor portfolios and investment strategies, as 58% of U.S. investors said income-generating investments were a priority.
The gap between the 8.3% rate of return investors sought to receive from their income-producing investments and the 6.4% real rate of return they received narrowed 50 basis points compared with 2013.
American investors had a far larger average equity allocation, 41%, than investors in any of the other 19 surveyed countries (Australia, Belgium, Brazil, Chile, China, Colombia, France, Germany, Hong Kong, Italy, Japan, Mexico, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, U.K.).
British investors were second with an average equity allocation 31%, followed Swedes at 29% and Australians at 26%.
U.S. investors appeared to have a less “aggressive” overall risk tolerance when investing than their counterparts in other countries.
Thirty-five percent of American respondents considered themselves aggressive, compared with 38% of Chinese investors and 37% of Swedish ones.
The average 8.3% rate of return U.S. investors were seeking on their income-producing investments fell far short of the top five countries.
On average, investors in Colombia are looking for 11%, in Mexico 10.5%, in Chile 10.4%, in China 10.4% and in South Korea 9.5%.