Revenge spending, the Roaring Twenties, and pent-up demand all meet investor expectations as the world emerges from one of the most tumultuous times in recent history.
To that end, a recent poll took their pulse, finding that it beats quickly with the anticipation of significant market returns.
Natixis Investment Managers, a Boston-based fund firm, last month released the results of its global survey of individual investors examining how the pandemic has affected their finances, health and sentiment about the markets.
Surveys of over 8,000 investors included the opinions of 300 Canadians.
It turns out that we are very bullish about the stock market, not just this year, but for the long term.
In short, Canadians surveyed believe this decade will roar much like the ‘roaring 1920s’, when the world emerged from a pandemic and a global war to see rapid economic expansion fueled by new technologies (phones, phones, radio, automobiles, airplanes, etc.).
“Right now there is a lot of euphoria, and it’s maybe really best described as relief as people come out of lockdowns,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight, which produces the annual sentiment survey.
According to the study, Canadian investors expect a market return on their investments of around 10 percent this year and 11.2 percent in the long run, above inflation (which is around 2 percent). percent).
Of course, there are good reasons to be enthusiastic.
The pandemic appears to be in its final chapter. As such, the desire to “avenge the spending” – on prohibited pandemic activities like vacations – is feverishly high, and monetary (interest rate) and fiscal (government spending) policies are roughly high. as accommodating as possible for consumption.
These return expectations are even higher than before COVID, when investors were already bullish, according to the survey, and much higher than advisers’ predictions: around five percent of market returns, over the long term.
Goodsell says individuals should pay close attention to this finding, recognizing that the more moderate expectations of the advisor market are a reason to seek their expertise.
“A lot of people say advisors make a living during downtime when they dissuade people from selling in a falling market,” he says.
“But it’s also times like these where they say, ‘You made a lot of money, so let’s take some off the table and lock in those wins to make sure you keep them. “”
It’s a valuable voice to have around your corner, especially from a behavioral perspective.
Goodsell notes that Natixis works closely with MIT’s financial engineering lab which examines investor psychology.
His research found that most people are “extrapolators, and that’s what we see here with those expectations,” he adds.
“If something good happens, we think it will continue to happen.”
While this is obviously not the case, many people are still excited about the market’s earnings going forward, says Chris Douglas, Winnipeg investment advisor at Manulife Securities.
“Pretty predictable, myself and many colleagues have seen an increase in the number of new clients.”
But they have good reason to be enthusiastic, he adds.
“Over the past two months, I have watched webinars from (fund) managers, namely Fidelity, Mackenzie and Manulife. And each is bullish for the next 12-18 months.
Much like the survey results, their fervor is more measured. Douglas adds that the pros know the importance of shearing positions in top performing companies like Amazon to reinvest in companies that may have higher growth opportunities as pandemic restrictions relax.
In addition to the Natixis poll, another measure of investor zeal is the large sums of capital paid into mutual funds and exchange-traded funds (ETFs).
In fact, a new report from Mackenzie Investments shows these flows are occurring at an unprecedented rate.
“The mutual fund industry and the ETF industry have been on the right track for record years,” said Michael Cooke, head of exchange-traded funds (ETFs) at Mackenzie Investments.
One reason is that investors recognize that conditions are very favorable for economic growth and corresponding stock market performance, even more so than after the Great Recession.
“The slowdown during the pandemic was not like what we saw in 2008,” he says. “It was not a by-product of inflated debt levels” and a collapse in financial markets.
All of this is good news for investors.
Despite this, the Natixis survey revealed a rather curious result: despite their enthusiasm for profits, investors are cautious, with 56% of respondents saying they are not comfortable taking risks to get there. ‘before.
“So there is this feeling that even if times are good … they have to be aware of the risks.”
For Goodsell, this discovery shows again how advisers can be of help. They can help manage the paradox embedded in the psychology of most investors regarding risk and return.
“It’s human nature to want to get big returns without any risk,” he says. “It’s like we want to eat an ice cream sundae without it touching our waist.”
Advisors, he adds, can help clients capture the expected uptick in the coming years while mitigating risk, including the inevitable bear market.
Indeed, risk mitigation is probably prudent.
Just consider how the Roaring Twenties ended last time around.