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Investment biases can lead to behaviour inconsistencies
Respondents seek to time market to buy risky assets but cash tops list of planned allocations, study finds
1 Dec 2020 | The Asset

Investment biases can lead to potential inconsistencies in investor behaviours, such as investors expecting portfolio growth amid shrinking economies and seeking cash but claiming the best strategy is to time the market, a new survey finds.

The Asia-Pacific study, commissioned by investment management firm PIMCO, shows that investors’ expectations, actions and intentions may not always be consistent, particularly in periods of volatility.

According to the survey, 48% of the respondents in the region think the best strategy in periods of market uncertainty is to seek to time the market to buy risky assets as they get cheaper or seem more likely to grow quickly in the new environment.

However, the planned allocations of these respondents show cash or cash-like assets topping the list. This implies a potential gap between how investors imagine they will react in times of uncertainty and how they do act, the study says.

Respondents continue to trust their own history and experience most in making investment decisions above professional advice and information published by financial institutions and investment consultants. This could be significant since incorporating impartial professional advice is a key means of counteracting potential biases influencing investor decision-making, the study notes.

Kimberley Stafford, head of PIMCO Asia-Pacific, says: “We have long believed that a deeper understanding of cognitive and emotional biases helps mitigate their effects and should help our clients make better investment decisions.”

According to the survey, 43% of the respondents in the region say the pandemic has had a negative impact on their confidence in their own decision-making, and 44% expect it to continue to do so. In the same survey, 51% say Covid-19 has had a negative impact on their portfolios so far, with 10% saying it has had a major negative impact.

The survey also shows that the pandemic has heightened investors’ enthusiasm for actively managed funds. Across the region, 55% of respondents’ portfolios are actively managed, with 46% of those surveyed saying they will likely allocate more to active strategies in the next three months.

Commenting on the findings, Adrian Stewart, head of client management, APAC ex-Japan, at PIMCO, notes: “The next few years will be an incredibly important time for active management as we expect markets to remain volatile. We firmly believe active management plays a key role in delivering alpha and long-term outperformance for investors.”

PIMCO says the survey involved 2,500 individual investors aged 25 and older with liquid assets of US$100,000 or more, and some experience with investing beyond their pension and superannuation accounts. Conducted in August 2020, the survey covered Australia, Hong Kong, Japan, Singapore and Taiwan, with 500 investors in each market.

It is the first of what will be a regular survey to gauge sentiment and outlook in challenging times, the company adds.