Forthcoming changes to lifetime pensions allowance inspires investors to invest elsewhere
The latest investor confidence survey from the Association of Investment Companies (AIC) using Morningstar.co.uk underlines how easily confidence can be affected by the short-term direction of markets.
Whilst confidence overall has changed little over the last 12 months, the same cannot be said for confidence in emerging markets, which has gone from being the most favoured, to one of the least favoured sectors in the space of 12 months, with the Asia Pacific sector suffering a similar fate. In contrast, developed markets are back in vogue after a strong year of performance.
ISAs and the lifetime pension allowance
Meanwhile, some 70% of investors plan to use their ISA allowance this year, down from 2013, when 78% of investors planned to make use of their allowance. 35% of investors are planning to use the shares only element (40% last year and 39% in 2012), and 25% are planning to use both the cash and shares element (27% last year and 26% in 2012).
With the lifetime allowance for pensions due to go down to £1.25m from 6 April 2014, it’s interesting that 13% of investors plan to invest more money into equities outside of their pension. Some 8.4% of investors plan to increase their exposure to other investments such as property, whilst 4% of investors plan to increase exposure, or invest for the first time, in VCTs.
Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Investor confidence remains strong, with sentiment towards developed markets surging ahead of emerging markets. The change in attitude towards the regions underlines the huge influence of short-term performance on confidence. So with ISA season approaching, it’s worth remembering why a balanced portfolio over the long-term is so important. Of course, bold contrarian investors can often be rewarded over time and many fund managers are currently increasing their exposure to emerging markets.”
Developed markets return to favour
In last year’s AIC research, some 23% of investors favoured the emerging markets sector, making it the most widely favoured sector. But after a torrid year for emerging markets, only 9% of investors now favour emerging markets, whilst Asia Pacific suffered a similar reversal in sentiment. Last year, some 19% of investors favoured Asia Pacific, making it the second most popular sector, but this has now fallen dramatically to just 6.5%.
In contrast, the UK is in demand after a strong year for developed markets. Some 35% of investors are favouring the UK, making it the most popular sector, compared to 15% last year. This is followed by Europe (16%) and North America (10%), with developed markets clearly leading the pack when it comes to investor confidence.
Increasing stockmarket exposure
Some 56% of investors plan to increase their stock market exposure over the next few months, compared to 55% last year. Amongst those planning to increase their stockmarket exposure, 34% are doing so because they are feeling optimistic about the outlook for the stockmarket, whereas 23% are investing due to poor rates of interest on savings accounts. Some 33% of investors plan to make no changes to their portfolio, whilst 7% plan to decrease their stockmarket investments.