Investor confidence

Down but not out

Investor confidence took a dip between May and November last year as the credit crunch encouraged more caution among investors. However, given the severity of the falls in global stock markets in October, the fall in confidence was relatively modest.

These were the findings of the Investment Management Association’s (IMA) second bi-annual Great British Investor report, published on February 26, 2009, which looked at the behaviour, confidence, intentions and concerns of Britain’s retail investors as at November 2008. The survey also includes two indices, developed by IMA, to provide barometers of investor confidence and intentions:

The survey’s findings include:

The percentage of investors who believe the economic climate has worsened increased from 39 per cent in May to 70 per cent in November. 

However, 38 per cent still see current conditions as creating opportunities for investment, this being particularly true of male and younger investors.
44 per cent of investors felt that if you see an opportunity to make a good return you should take the risk.

Brand features more strongly in investors’ minds, with a notable 11 percentage point increase, to 19 per cent, of investors stating that they would only buy a product from a provider that they know and is well-established.

The report splits investors into one of five groups: Discerning, Adventurous, Organised, Cautious and Casual.

Discerning investor
These investors have a good knowledge of financial matters to the point where others will come to them for advice and help. They keep up to date with financial news and matters. They look at their investments as an active hobby and believe that it is less satisfying to spend than it is to save.

Adventurous Investor
These investors have good financial knowledge and are self proficient when making financial (and investment) decisions. They regularly look at financial websites and do not find financial matters confusing. They are good at managing their own portfolios, although they now seem less prepared to accept the same level of risk relative to the appetite for risk that they expressed in the May survey. 

Organised Investor
These investors may have a good financial knowledge but unlike discerning investors they do not treat their financial affairs as an active hobby. They regularly read the financial papers, are debt averse and have an entrenched savings culture.

Cautious Investor
These investors have an average financial knowledge and are not prepared to accept any level of risk. They do not always follow financial news. For them, investing is seen as a necessity and they are not prepared to lose any money even if it may yield higher returns in the long run.

Casual Investor
These investors are not financially organised and usually do not manage their financial matters well. They do not follow financial news and find financial matters confusing. In turn they do not have good financial knowledge and turn to others to help them make financial (and investment) decisions.

The report found:

Confidence has fallen most among Adventurous and Casual investors whereas confidence has been broadly stable among those who are more Discerning or Cautious. 

Adventurous investors are not willing to take on as much risk relative to their position in May.  However, discerning investors were prepared to take on more risk than the other clusters as they understand that investing can carry some level of risk. 

All clusters except Discerning think that the uncertainty in the market will make them delay their investment plans; Discerning investors are neutral.  

Given the continuing falls within the property market, all clusters have little faith in property with discerning investors being the most negative toward this particular market.