Higher interest rates and inflation are creating a new investment landscape. Schroders Global Investment Study 2023 shows that more than 23,000 people worldwide are adjusting their strategy, as well as responding to the impact of sustainable investment.
A new study by Schroders, a London-based investment manager, shows that the economic shocks of 2022 had a profound market impact, with high inflation and interest rates' powerful new influences on the investment landscape not seen since the 1990s.
This is a very different environment from when the Global Investor Study last surveyed people’s thinking in 2022. At that time, some commentators believed that the disruption was a blip and predicted a quick return to the benign, low inflation, low rates environment. This is a new investment regime and 78 per cent of people recognise this, the survey reveals.
Most people in the 33 locations surveyed have switched strategies – but around a third have yet to adapt, the firm said. This is the multitasking challenge of investing in 2023: adjusting to the new economic reality while seizing opportunities such as sustainability and private assets.
Schroders commissioned alan.agency and iResearch to conduct the online survey of more than 23,000 people who invest from 33 locations and territories around the globe, spanning Europe, Asia and the Americas. The survey was conducted online between May and July 2023.
Most respondents have adjusted their overall financial strategy in light of the tougher economic outlook in many regions. Saving more and spending less is the most popular response, selected by 44 per cent of respondents, the survey shows. But with the higher cost of living, many are forced to borrow more. This was deemed a likely choice by 41 per cent of those aged 18 to 37, the survey shows.
A new investment landscape demands new thinking. With such changes, more than half say they have adapted their strategies. They are generally increasing their risk tolerance – especially younger investors. But this masks differences in regions, with those in the US adding risk to their portfolio, and 81 per cent reporting that they have increased risk tolerance. Respondents in Asia are also increasing their risk tolerance on average, with the proportion saying their risk tolerance is higher than five years ago at 62 per cent. It is in Europe (including the UK) where people are cautious, particularly in Germany and Italy. Across the region, the proportion saying that their risk tolerance is higher than five years ago is less than half at 46 per cent, the firm said.
Despite the change in the investment landscape, expectations for returns have changed little. Asked for realistic expectations for their return over the next five years, they gave an annual figure of 11.5 per cent, compared with the 11.4 per cent in the Global Investor Study 2022, the firm added.
Despite the difficult economic climate, many people remain enthusiastic about tech: internet and tech stocks were the most popular investing theme, with 65 per cent of people saying they have become more attractive over the last six months.
Real estate also remained a strong choice for many investors, ranked second among thematic investments. The next most popular investment themes were electric vehicles and sustainability.
Despite the rollercoaster ride of the last few years, investors remain upbeat – especially those with more knowledge. “In an investment landscape being increasingly shaped by the ‘3Ds’ of deglobalization, decarbonization and demographics, investors are still getting used to the fact that higher inflation and higher interest rates are here to stay. Every asset has had to reprice to compete with a yield on cash in the bank. Valuation matters once again. Compared to the last 15 years, you may now need to be more flexible and active in the way you invest. The results of the study show that some investors are adjusting quicker than others,” Johanna Kyrklund, co-head of investment and group chief investment officer, said.
The survey also shows that people are still increasingly attracted to sustainable investment. They no longer see sustainability and high returns as opposites – the number staying away from sustainable investing because they think it won't offer higher returns has fallen by more than half. They believe that they can have both and continue to be drawn to sustainable funds, with 55 per cent saying due to the wider environmental impact, compared with 52 per cent last year.
“The findings of the Global Investor Study 2023 underline the widespread but growing recognition of the importance of active ownership to sustainable investment. Companies across industries face a wide range of challenges and opportunities, and intensifying pressures to adapt and evolve. As active managers with a long term and fundamental focus, using our voice and influence to encourage companies to build healthier, more sustainable business models has long been important and is becoming more so as those trends intensify,” Andy Howard, global head of sustainable investment, said.
Opportunities in private assets
For many years, private assets were an investment only open to institutional investors such as pension funds and the very wealthy. That is changing – and people who responded to the Global Investor Study 2023 are enthusiastic, the firm said. They see private assets as a way of boosting performance, reducing risk, and improving sustainability.
Despite difficulties in some regions in investing in private assets, there were clear preferences for investment, indicating that they have been paying attention to this type of investment, the firm said. The top choice: 30 per cent most wanted to invest in private equity, which includes venture capital and investing in growth companies. People who rate their investment knowledge as expert are particularly keen on private equity, with 46 per cent saying they most want to invest there, the survey shows.
"The range of options to access private markets is widening, and smaller investors are taking note. They’re looking for every available tool to achieve their desired outcomes, and private assets represent a significant number of return drivers. We believe this is a hugely positive development, and the case for including a private asset allocation – where appropriate – is arguably stronger than ever," Nils Rode, chief investment officer at Schroders Capital, said.
The research defines “people” as those who will invest at least €10,000 ($11,000) in the next 12 months and who have changed their investments within the last 10 years. Due to this threshold, Schroders acknowledges that the research findings are not representative of everyone’s experience.