In an investment environment of heightened uncertainty, retail and institutional investors are exhibiting behavior that appears to be at odds with their investment goals, according to the inaugural global investor study by the State Street Center for Applied Research, entitled: The Influential Investor: How Investor Behavior is Redefining Performance.
The study, conducted by the Center for Applied Research, an independent think tank residing at State Street Corporation (NYSE: STT), was based on 12 months of research and input from more than 3,300 investment management industry participants. Among the study’s primary findings is that, investors aren’t acting in their best interests as they are becoming more aware of economic instability and misaligned interests amongst investment providers, government and markets. As a result, their investment decisions don’t always align with their stated goals and there is ample aggregate evidence of this behavior. For example:
- Institutional investors are faced with challenges in navigating the complexity of certain asset classes. Low-yield markets have increased institutional investors’ appetite for alternative strategies. Yet, the majority admits their greatest challenge is not having a deep enough understanding of these assets.
- Retail investors’ conservative strategies are cracking their retirement nest eggs. When retail investors were asked what steps needed to be taken over the next ten years to retire, the majority said to invest more aggressively, yet cash is their number one allocation now and is expected to remain number one over the next decade.
Commenting on the drivers of behavior and goals of both investor groups, Kelly McKenna, global head of the State Street Center for Applied Research said: “While investors have never been as aware of their micro and macro environments, they are exhibiting behaviors that are divorced from their stated investment objectives.”
Against this backdrop of investor disconnect between behavior and goals, the study found that investors identified performance as the most important metric for determining the value of their investment providers as well as the greatest weakness of their investment providers.