Asian investors riding their luck for good investment returns

Nearly half of Asian 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, at 31 per cent. Yet a surprisingly high percentage of these investors rode their luck when approaching investments, thereby potentially exposing themselves to a level of risk much higher than their normal risk limit. Investors in other Asian territories also relied on luck, albeit to a lesser degree.

“Relying on luck is typically a highly risky investment strategy,” said Michael Dommermuth, Manulife Asset Management’s newly appointed head of wealth and asset management in 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 euro zone 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 per cent. Yet, of those investors happy with their returns, in Indonesia 54 per cent cited pure luck, while in the Philippines it was 42 percent and Japan followed with 38 percent.

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, better diversification and carefully managed risk exposure.

For 59 per cent of Chinese investors, rebalancing their portfolios was key. More than any of their peers in the region, mainlanders do not rely on “pure luck”, with only 11 per cent saying luck was a factor. Meanwhile, 54 per cent of Taiwanese and 41 per cent of Hong Kong investors, portfolio diversification was noted as a major reason for their respective investors’ positive views of their investment performance. For 39 per cent of Singaporean, 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,” said 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, and being insufficiently invested. In Japan, almost half of investors wished they had invested more. It was in 35 per cent of Hong Kong investors, 43 per cent of Taiwanese and, most noticeably 52 per cent of Singaporean, where unforeseen events had the biggest impact.

According to Dommermuth, it was 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. 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.