Public rethinks the appeal of managed investments

It seems that fund managers are being given a second chance to prove the worth of their wares to the once-burnt twice-shy investing public.

In April, the ASB Bank Investor Confidence Index saw a resurgence in confidence that managed funds are the investment that delivers the best returns, the first such upward swing in quite a long time.

The chart below shows the quarterly measures for each of the four major investment types, going back to Q4 1998 – with the heavy lines showing the 12 month rolling average.  After a steady downward slide from mid 2000 onwards, the belief in managed investments rallied slightly in Q2 2004, and then fell again.  The dramatic recovery in Q1 this year (on the lighter red line) is matched by a significant drop in the measure for residential rental property, bringing the two closer together in the public mind in terms of returns than they have been in years.

The decline in faith in residential rental property comes at a time when the property market appears to have slowed significantly, though median sales prices are holding up in the face of steadily declining year on year sales numbers.

Interestingly, a rise in the ‘best return’ stakes doesn’t necessarily translate into increasing appeal.  The chart below compares the ‘best return’ rating to the appeal of actually investing in each of the product types.

While there is clearly a correlation between the two – residential rental property being both the most appealing and the most likely to be seen as delivering the best return - we see that there are some anomalies in the comparisons of 2005 to 2006 data.

While bank term deposits have declined somewhat in terms of being seen to deliver the best returns, they have at the same time slightly increased their appeal year on year – perhaps a segment of consumers seeing certainty above all, or simply satisfied with their actual returns.

Similarly – but in the opposite direction – the proportion of people who feel that commercial property delivers the best return has more than doubled year on year, yet the general appeal of investing in commercial property has significantly dropped.

If we consider where the major attitudinal shifts have occurred, we find that the greatest increases in the appeal of managed investments have been amongst younger people, particularly those in their 20s, and certainly the under 40s. 

Perhaps the new age of responsibility is upon us as GenY’ers start reversing the spend now save later mentality of their parents’ generation.

We also see heightened appeal of managed investments amongst those who have already started saving for their retirement (a figure now slightly up at 55% of the adult population), and amongst those who work (particularly the part-timers).

This results in a significant increase in the appeal of workplace superannuation schemes, along with personal super schemes as well.

It seems that the soon to be implemented Kiwisaver scheme will land on fertile territory, with a solid three quarter of the population STILL in favour of some form of compulsory savings scheme, and the investment types chosen for that scheme receiving more positive ratings from the public than they have for some years now.

One can only hope that this time around, the new investors are better prepared by their advisers for the inevitable swings and roundabouts, and persuaded of the merits of truly long term investing, in something other than bricks and mortar!

Debra Hall

 Debra Hall is the owner of Synovate Ltd, a market research consultancy that conducts ongoing research into financial services.  The views expressed in this column are her personal opinions, based on over 10 years of research into consumer attitudes to financial markets, and non-proprietary data from the SaverPulse™ survey.