Pure luck proved a winning formula for more than a quarter of Asia investors who were happy with their investment returns last year.
That’s 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 per cent) of Asia investors were happy with their investment performance in 2014. Indonesian and Filipino investors were the happiest, at 81 per cent and 76 per cent respectively, while investors in Japan were the least satisfied (31 per cent). 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," says 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 per cent cited pure luck, while in the Philippines it was 42 per cent and Japan 38 per cent.
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 per cent), better diversification (29 percent) and carefully managed risk exposure (28 per cent).
For Chinese investors (59 per cent), rebalancing their portfolios was key. More than any of their peers in the region, mainlanders don't rely on "pure luck", with only 11 per cent saying luck was a factor. In Taiwan (54 per cent) and Hong Kong (41 per cent), 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," says Dommermuth. "We firmly believe that carefully selecting a diversified range of investments across asset classes and geographies can be a good way to maximise investment returns across market cycles."
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 per cent – well above the average.
The two main causes of dissatisfaction region-wide were unexpected market events that impacted returns (32 per cent), and being insufficiently invested (also 32 per cent). In Japan, almost half (49 per cent) of investors wished they had invested more. It was in Hong Kong (35 per cent), Taiwan (43 per cent) and, most noticeably Singapore (52 per cent), 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 minimise risk exposure while still delivering the potential for capital gains or even a recurring income stream."