New report shows opportunity for active managers

2017 Individual Investor Survey Trust

After a decade of extremes, a majority of investors across the globe report they feel financially secure and focused on achieving long-term financial goals. However, a deeper look at sentiment reveals that the scars of the global financial crisis may still run deep and many don't know who to trust, according to a new survey from Natixis Global Asset Management.

Entitled: "Trust, transparency and the quest for clarity," the report is based on our firm's survey of investors globally in February and March of 2017, with the goal of understanding their views on the markets, investing and measuring progress toward their financial goals. Investors from 26 countries are represented in this, the eighth annual survey of individual investors.

An online quantitative survey of 41 questions was developed and hosted by CoreData Research. Each of the 8,300 individual investors had minimum net investable assets of US $100,000.

"The foundation for earning investor trust starts with listening," said David Giunta, CEO for the US and Canada at Natixis Global Asset Management. "Through our research, investors tell us loud and clear they want a better connection to their investments, they're confused about passive investing, and they want transparency and value for their money."

In addition, active managers such as Natixis still have work to do around investor education. For example, according the survey, some participants believe passive investments such as index funds can provide greater risk management benefits than these products can actually deliver. Others may see closet trackers in the market who charge an active management fee for what is essentially a benchmark-hugging portfolio and make erroneous assumptions about all active managers. And many investors have overly optimistic expectations for investment returns yet little appetite for risk, and they struggle to understand the wide array of investments available to them.

This is where asset managers have an opportunity to win the trust of investors by lifting the fog that surrounds their investment views.

In the United States, two-thirds (68%) of investors surveyed feel financially secure and emboldened enough by strong stock market gains to take additional investment risks, but the market's record highs and historic calm over the past year aren't enough to soothe their fear of losses. Fewer than half (45%) of investors completely trust themselves to make investment decisions, and while most admit they need help, they are conflicted about who to trust.

Some of the blame for investor confusion can be traced to closet indexers – firms that claim actively managed portfolios and charge commensurate fees, but deliver portfolios that mimic benchmarks. Sixty-four percent of U.S. investors say they expect their mutual funds to have portfolios that differ substantially from their benchmarks, but 71% believe many active managers charge high fees while really just tracking an index. That may be why in Natixis surveys last year, 57% of institutional managers and 43% of financial advisors, respectively, cited the prevalence of closet indexers as a reason they used passive strategies.1

Natixis found investors continue to prioritize owning investments that reflect their personal values and adhere to high standards for environmental, social and governance (ESG) criteria – a conviction that may be difficult to rationalize for investors who rely solely on traditional passive index funds. Three-quarters (75%) of U.S. individuals surveyed say there are companies they don't want in their portfolios because they violate their personal principles, and 73% go so far as to say they would sell a company that had environmental or ethical problems. Yet despite the hundreds of companies included in many popular indexes regardless of their corporate behavior, nearly half of investors (46%) do not believe index funds contain companies out of sync with their values. That may be why 76% of institutional investors said actively managed strategies are a better option than passive ones for ESG investing in a Natixis survey last year.

"Many investors are no longer satisfied by doing well, they also want to do good," said Giunta. "As investors' goals for their money increasingly extend beyond their account statements, financial professionals need to take a holistic view of client portfolios that balances their desire for return with risk, cost and broader considerations."

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