Insights from Legg Mason's
new Global Income Survey
Bridging the gap in income investing
From New York to London to Tokyo, it's the same story; affluent investors aren't getting what they want from their income investments.
- Income is a growing priority for investors in every corner of the world, yet there is a substantial gap between what they say they want from income investments and what they receive.
- Many have adopted a multi-dimensional approach to income that draws on a broad range of strategies, including equities and global bonds. Yet fears of economic uncertainty and a persistent "home bias" in certain countries remain important issues.
- The good news: most say they want to become more knowledgeable about income investing, and they're eager for financial professionals to point out fresh opportunities.
That's just a sample of the findings in Legg Mason's Global Income Survey, which polled over 3000 affluent investors across North America, Europe and Asia about attitudes on income investing. Note: click here for details about survey methodology.
Key Findings
The expectations gap: hope vs. reality
Despite the low interest-rate environment that's predominated in recent years, investor expectations for performance on income investments remain well above actual returns. In the US, for example, the gap between average expected and actual returns is 2.6 percentage points.
Gap between desired rate of return and actual rate of return on income-generating investments (in basis points)
"Home bias" remains a factor
The survey shows investors around the world are growing more open to the idea of going outside of their own country for income opportunities. However, "home bias" remains an issue in many countries. While there is significant variation between countries in the percentage willing to invest internationally, there is ample room for growth in nearly all markets.
% who definitely/probably would consider investing internationally for income (among those who do not do so now)
Diversifying income investments
Investors around the world vary greatly in the degree to which they have embraced higher-risk fixed income sectors and equities as generators of income. Investors in China, Singapore, Italy, Canada and the US were most likely to utilize equity income funds.
% using equity income funds to address income needs
Income is a top priority
Income was identified as a key priority for affluent investors across nearly every country surveyed, one that's grown dramatically in importance in recent years. That's driven by a number of factors, primarily the desire to grow and protect wealth and maintain their lifestyle amid today's low interest rate environment.
% of investors who put greater emphasis on income products than 5 years ago
A hunger for knowledge
Except for Germany and Japan, more than 70% of investors polled said they would like to be more knowledgeable about investing for income. What's more, a significant proportion of investors said they don't have a good understanding of the range of options open to them – and a solid majority of those who work with advisors say they want to be offered more and/or better income opportunities.
% who say they would like to be more knowledgeable about income investing
Risk aversion is alive and well
Having to take on more risk to obtain good yield remains a top concern for income investors, along with geopolitical and geo-economic uncertainty and the potential for inflation. When it comes to international investing, few investors cited having better opportunities at home as a reason not to go global in the search for income.
% who cite factor as causing most anxiety in meeting income needs (weighted composite of all countries surveyed)
Survey Methodology
The survey was conducted between December 1, 2012 and January 30, 2013, utilizing responses from a total of 3,028 investors as follows: 500 in the US; 202 in Canada; 200 in UK, Spain, Japan and Australia; 201 in France, Italy, Germany; 230 in Hong Kong and Singapore; 231 in Taiwan and 232 in China. Respondents had to meet the following screening criteria:
1) Sole or joint decision-maker for household investment decisions.
2) $200,000+ investible assets, including investment real estate but not primary residence/vacation property (note: In each market, half the sample consisted of investors with $1MM+ assets).
3) Age 40-75. Statistical testing was conducted at the 95% confidence level.
Legg Mason was not identified as sponsor of the survey to respondents. Respondents were not screened or selected based on usage of Legg Mason products or familiarity with Legg Mason. Respondents received a token payment (under $10 USD) to incent them to complete the survey. The research was conducted by Northstar Research Partners, an independent global marketing research firm with offices in New York, Toronto and London. Northstar conducts research across a wide range of industry sectors and is a recognized leader in financial services marketing research.
All investments involve risk, including possible loss of principal. Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against loss.
Fixed income securities are subject to interest rate and credit risk, which is a possibility that the issuer of a security will be unable to make interest payments and repay the principal on its debt. As interest rates rise, the price of fixed income securities falls.
Foreign securities are subject to the additional risks of fluctuations in foreign exchange rates, changes in political and economic conditions, foreign taxation, and differences in auditing and financial standards. These risks are magnified in the case of investments in emerging markets.
Diversification does not guarantee a profit or protect against loss.
This document is for information only and does not constitute an invitation to the public to invest. You should be aware that the investment opportunities described should normally be regarded as longer term investments and they may not be suitable for everyone. The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Past performance is no guide to future returns and may not be repeated. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. Please note that an investor cannot invest directly in an index. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Information and opinions expressed by either Legg Mason or its affiliates are current as of the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors. The information in this document is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this document or its contents. This document may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this document may be restricted in certain jurisdictions. Any persons coming into possession of this document should seek advice for details of, and observe such restrictions (if any).
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