But Majority of China investors attribute it to skill
Mar 6, 2015 – Pure luck proved a winning formula for more than a quarter of Asia investors who were happy with their investment returns last year, a percentage that illustrates how instincts can serve investors well, but at the same time points to many using a high-risk investment strategy, according to closer analysis of findings in a Manulife survey.*
Almost half (49 percent) of Asia investors were happy with their investment performance in 2014. Indonesian and Filipino investors were the happiest, at 81 percent and 76 percent respectively, while investors in Japan were the least satisfied (31 percent). Yet a surprisingly high percentage of these investors rode their luck when approaching investments, thereby potentially exposing them to a level of risk far higher than their normal risk threshold. Investors in other Asian territories also relied on luck, albeit to a lesser degree.
"Relying on luck is typically a highly risky investment strategy," said Michael Dommermuth, Manulife Asset Management's newly appointed Head of Wealth and Asset Management, Asia. "After several years of relative calm in many global markets, uncertainty over interest rates, geopolitical tension, slower economic growth in China and the prospect of continued recession in the eurozone mean that renewed volatility is likely to continue in 2015. Luck will usually do little to insulate investors from the degree of market risk implied by these market forces."
An earlier Manulife survey found that about three-quarters of investors in the Philippines and Indonesia, and two-thirds of investors in Japan have a low tolerance for risk — defined as a fluctuation on investment returns of less than 10 percent. Yet, of those investors happy with their returns, in Indonesia 54 percent cited pure luck, while in the Philippines it was 42 percent and Japan 38 percent.
Mainland China Investors Focus on Rebalancing Portfolios
While pure luck was the most eye-catching stated driver behind those pleased with their investment performance, a greater number of investors attributed it to judgment and skill. They said the secret of their success was a planned approach, comprising proper rebalancing of the portfolio (35 percent), better diversification (29 percent) and carefully managed risk exposure (28 percent).
For Chinese investors (59 percent), rebalancing their portfolios was key. More than any of their peers in the region, mainlanders don't rely on "pure luck", with only 11 percent saying luck was a factor. In Taiwan (54 percent) and Hong Kong (41 percent), portfolio diversification was noted as a major reason for their respective investors' positive views of their investment performance. In Singapore (39 percent), portfolio diversification was considered central as well.
"It is heartening to see that so many investors in Asia continue to rely on careful portfolio management to drive the potential for returns," said Dommermuth. "We firmly believe that carefully selecting a diversified range of investments across asset classes and geographies can be a good way to maximize investment returns across market cycles."
Unexpected Events and Underinvestment Cause Investment Dissatisfaction
While a majority of investors in Japan relied on luck for good investment performance, it also had the largest percentage of investors dissatisfied with their investment returns, at 27 percent – well above the average. The two main causes of dissatisfaction region-wide were unexpected market events that impacted returns (32 percent), and being insufficiently invested (also 32 percent). In Japan, almost half (49 percent) of investors wished they had invested more. It was in Hong Kong (35 percent), Taiwan (43 percent) and, most noticeably Singapore (52 percent), where unforeseen events had the biggest impact.
According to Dommermuth: "It's not surprising that investors in Japan were displeased with their investment return given the low interest-rate environment and high allocation to cash. Also, renewed volatility means that investors are likely to continue to face unexpected market events in the year ahead. In our opinion, an asset allocation portfolio, which actively rebalances exposure to equities and bonds and various global markets to reflect current market conditions, can be a suitable investment strategy for these conditions. It can help to efficiently minimize risk exposure while still delivering the potential for capital gains or even a recurring income stream."
1 Survey for the Manulife Investor Sentiment Index, 1Q 2014 For more information on the Manulife Investor Sentiment Index in Asia, please visit www.manulife-asia.com.
Manulife is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. We operate as John Hancock in the US and as Manulife in other parts of the world. We provide strong, reliable, trustworthy and forward-thinking solutions for our customers' significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We also provide asset management services to institutional customers. Funds under management by Manulife and its subsidiaries were approximately US$596 billion as at 31 December 2014. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife can be found on the Internet at manulife.com.