Decision Time

It seems indecision has been tormenting investors longer than many might think.

For the past two years, in fact, CoreData’s quarterly measure of investor sentiment has revealed an oscillation between action and inaction when it comes to allocating more or less assets to equities by Australian investors.

Two years ago, as markets continued rising throughout 2007 (barring the mid-year bounce that year) many investors were pinching themselves and asking: “is this as good as it gets?”

This indecision has the potential to create opportunities for investment advice professionals.

At the end of the day, uncertainty is not necessarily all bad – after all if the world was a place of absolute certainty there would be a very limited need for a whole range of professionals who ply their trade by advising people.

So what has been happening in the wavering minds of investors over the past two years?

Before the markets truly tumbled in the last quarter of 2008 many investors began to take profits while others topped up existing investments hoping to take advantage of the so-called “once in a lifetime” equities boom, which China and India were going to ensure would continue for years to come.

As this was happening our data was suggesting investors, in general, were still exhibiting moments of uncertainty as the quarterly collective investor mood bounced, in terms of making additional equity asset allocations.

This continued even as markets turned many investors left in two minds as to how they should react.

In fact it took a while for investors, and many seasoned professionals, to comprehend just what was happening in 2008.

Big market falls were followed by perceptions the bottom had been reached, causing some investors to re-enter the market, only to see the market nosedive over another cliff shortly thereafter.

This all came to a head in the final quarter of 2008 when investors, nerves shattered, said “enough was enough” as the market truly appeared to have toppled over a precipice.

The led to mass redemptions out of managed funds equity products as investors sought the save haven of cash, which was still offering reasonable yields.

The question of institutional security would shortly rattle these now apparent yield-seeking-nomads.

With interest rates now a shadow of their former levels, fund managers – buckets at the ready – are hoping individual and collective stock volatility can reach a level that may entice investors back into the market.

And their faith could be rewarded it seems, as the recent rush of redemptions in the managed funds industry could reverse somewhat from here on in throughout 2009 as falling yields in cash encourage investors to look elsewhere for returns, according to new CoreData research.

For many other investors the trigger point for potential asset re-allocation has already been passed in terms of expected returns with more than half of the respondents in the study identifying levels the market has already fallen below.

This article is an extract of a column that appears in the latest edition of IFA magazine.