Transcript
VICTORIA NYE
This is the growth of the investment funds marketplace retail funds, so it doesn’t encompass all the funds that are in insurance funds and pension funds, which have been discretionary funds, it’s more the retails funds that you see in our various funds sectors we have here at the IMA - 23 fund sectors. What are we seeing there? We’re seeing a significant growth in the marketplace. If you think about the asset mix of those funds, they started off in 1980 being about 85% equity. That’s percentage and equities in the funds that we represent on this table have dropped about 55%. What we’re seeing in that, already, is a balance of asset mix. So funds are being used less about this is my way of getting my portfolio of shares, this is a diversification route. It’s more about; this is providing me with an overall portfolio which will include fixed interest, and maybe a bit of property, as well.
To carry on looking at the statistics, I’ll talk you through it, a bit. What we’re looking at, here, is that the net retail sales, in the industry, from 1994 to 2013, (with some inflation adjustment their, for those of you who would like to see that as well) what happened at the time of the credit crisis obviously a significant drop in sales, so risk, scare, and help, sales dropped, but look what happened on the right hand side of the chart. This is net growth and deposits vs. net retail sales of UK authorised funds. Interestingly, as the interest rate (the base rate) drops from 6% to 1/2%, obviously, the amount of deposits drops, or, people are taking money out of their deposits. Where are the putting it? What you might deduce from this chart is that they’re putting it into funds. Indeed, if you look at various savings statistics, that seems to be what they’re doing. There’s a figure that we’ve got in our annual management survey that says that half percent of people’s disposable income was going into funds back in 2008 and that rose to 3% of disposable funds, after the crash. Some people might say other people weren’t saving as a result of the crash, actually, they were in this vested community that I’m talking about, and they definitely were continuing to keep their money invested, and in fact, putting it into an ostensibly riskier asset - into the equity market.
This is an old cartoon, but it’s, obviously, demonstrating a point about timing. When would you put your money in the market, and when would you take it out? And somebody earlier, in one of the earlier presentations eluded to the fact that a lot of money could be lost by trading in and out of the market and I think it’s worth saying that the average holding for an investment fund by an investor is well over seven to eight years, so they’re not trading it in and out of the market typically, they’re holding it for the longer term. What is this telling us? One of the pieces of research I’ve found very useful in terms of being an industry person when thinking about what our customers are looking at, is the research that NEST has done which is looking at communications on investment. I don’t know whether you’ve seen that, but it’s a very interesting piece of research. What they highlight in their market, which is not typically the market the investment management industry is used to, is that investment is something that rich people do with their money because they can afford to lose it. I’m not the best person to talk about it, again, Alex has done a brilliant job of talking about attitudes to risk and about the catastrophic, everything looks like a loss rather than a gain and tending to err on the side of the negative. What I found fascinating is a figure that came out that says that 40% of people would go for the lowest risk investment on the plate, as it were, even if it wasn’t in their best interests. That’s NEST coming out with that statement, but I think it’s telling us something, in the industry, about how we produce products and what we say about the products, without deluding people, of course, that we’re giving them something that they haven’t got. I think another point that came out of that research that i thought was also interesting is about whether people want a guarantee or not. I think that when they’re looking at the guarantee and what that does in cost terms, to the value of their investment, some people are actually saying, no, we don’t want it. So there’s an explanation that needs to be done, behind that. Even if you look at that mass affluent, this time, the more typical investment management investor, you’re finding some research that one of our members did that 95% of them see wealth preservation as a top priority. At the same time, 21%, questioned in that research, said they were not feeling well prepared for their savings, for retirement.
What I would like to do now is have a little look, an analysis, of where we’re seeing the changes in investment preferences, over time. To point this out to you in terms of the blocks we’ve got, the first one is outcome and allocation which is typically those funds that are providing you with more spread of risk across different asset classes. That’s what allocation is about. Outcome is those products that are coming through, now, much more popular, which is target date type funds. Fixed income you’ll know; equity income and equity growth, I think you’ve all heard of. The equity income one is the one that generates a higher income, but we’re still within an equity portfolio. What we’re seeing back at the post-crash, that risk period where everyone saw the market tumble, as the case may be, dropped 30%, in the year, is that people went for income. Obviously, that engenders a significant improvement in the amount of money they had in their pocket year-on-year. That’s what mattered to the investment management association type customers.
This is a table, a chart that we’ve got in our consumer website. I’ve given you all a card so you can see some of the information that we’ve put up, as an industry, to sort of help people understand the different products that are around. Three thousand funds is a lot to choose from but they are put into sectors, and this one is the equity income sector and it’s showing us a simple message that we can put through to people who are thinking about investing that while your capital value goes up and down, your income can stay quite steady. It can even get better if they sit on the investment for a long time. What this shows is 10,000 invested in 2002 and how that’s changed in capital value, and what income that has generated for you, over the years. I think, in terms of market volatility is quite a powerful message. You could do the same with a chart which shows what you would do if you put your money into fixed interest, but obviously, the capital value would be steadier; in fact, the income would be steadier, as well.
The second reason we saw this surge in fund sales, post-crash, is because of this move towards outcome and mixed asset type funds of which more and more are being launched within the investment management industry. As I said, the mixed assets is about having a spread of assets in your portfolio, so it would be fixed income, equity mixes and global equity mixes, doing what funds are supposed to do, to be quite honest, in terms of spreading the risk. The outcome orientated ones are those that are working with the attitude to risk type surveys that advisors love to use and providing products that advisers who are using those questionnaires can then slot their clients’ money into, depending on the bands of volatility there might be. Here then to show you is the development of the growth of those funds, over time. The sales we saw in those sectors were well driving the sales for the industry, as a whole, and another sector that is not represented here but which amalgamates a lot of the individual funds was called the funds of funds sector. That has put on 20% of growth, per annum, for the last two years, since the crash. It’s showing you that actually again, people want a packaged; diversified solution.