OREANDA-NEWS. March 16, 2016. According to the 2016 Legg Mason Global Investment Survey, when asked how market volatility influences their approach to equity investing, investors showed more patience than panic.

Specifically, 500 affluent U.S. investors surveyed from December 2015 to January 2016 said on average that a:

  • 19% decline in the equity markets would compel them to re-evaluate their equity holdings
  • 22% decline in equity markets would cause them to sell equities in their portfolios.

In addition, 85% said the recent volatility in the financial markets is "nothing we haven't seen before."

"Judging by the average volatility tolerances we uncovered, investors are prepared to be patient through periods of turbulence," said Thomas Hoops, Executive Vice President of Legg Mason. "That's a wise strategy. The S&P 500 has fallen by 22 percent or more from its peak only four times since 1970, and it recovered each time. That bodes well for those who weather the storm and stay invested."

"Conversely, it also suggests that those who sell off at the 22 percent trigger would be doing so at the absolute worst time. This is why we always advocate that investors understand their true risk exposures and diversify."

U.S. Stocks Rated Best Opportunity for 2016

  • 82% of investors said U.S. stocks offer the best opportunities anywhere on earth in 2016
  • 74% said they expect the Dow Jones Industrial Average to increase in 2016
  • 8% increase in DJIA predicted by investors, on average, for 2016
  • 7% average annual portfolio rate of return expected by investors
  • 8% average annual portfolio rate of return expected by "aggressive" investors
  • 81% said they were optimistic about their investments in 2016

Asset Allocation: Static Allocation Suggests Indecision

The Legg Mason Global Investment Survey has measured changes in asset allocation among affluent investors since 2013.  Similar to years past, the asset allocation tilted heavily toward equities this year:

Average asset allocation since 2013:       


2016

2015

2014

2013

Equities                               

41%

41%

41%

39%

Cash                                           

23

22

22

25

Fixed income                           

15

16

20

19

Other                                     

20

21

17

17

"The consistently high cash allocation that investors maintain runs counter to their stated optimism, and could hinder their long-term portfolio performance," Mr. Hoops said. "It could be a remnant of the Financial Crisis, but it's more likely a sign of indecision. Without knowing what to do, they're not doing anything. We believe this magnifies the need for investment solutions that bridge the gap between equities and fixed income – lower volatility alternatives in markets and asset classes that are less correlated to what investors already own. It's not about taking more risk; it's about taking different risk and achieving real diversification. Some alternatives might include managed volatility or long-short strategies, globally unconstrained bonds, and asset classes such as infrastructure and real estate.

"The data shows that investors and their advisors should take a closer look at how global alternatives can help cure this indecisiveness and improve the odds that investors can achieve their long-term financial goals."

Where to Invest and Where's the Risk? 

Excluding the U.S., investors said these countries/regions are the best investment market opportunities for 2016:

1.       China

2.       Europe (excluding UK) & Japan (tie)

3.       UK

4.       Australia

Including the U.S., investors said the following countries present the highest amount of investment risk:

1.       Russia

2.       China

3.       Mexico

4.       Brazil

5.       India

About the Legg Mason Global Investment Survey

Northstar Research Partners conducted the fourth annual Legg Mason Global Investment Survey among 500 affluent U.S. investors. Participants had a minimum of \\$200,000 in investable assets not including their home.  Fielding was conducted through an online survey between December 3, 2015 and January 8, 2016. To learn more about our findings, click here: www.leggmason.com/trendingconversations  

About Legg Mason

Legg Mason is a global asset management firm with \\$656.7 billion in assets under management as of February 29, 2016. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

All investments involve risks, including loss of principal.  Past performance is not a guarantee of future results.

Please note an investor cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.