Investor Confidence Down But Not Out, IMA Finds

by Phillip Morton, Investors Offshore.com

27 February 2009

Investor confidence took a dip between May and November 2008 as the credit crunch encouraged more caution among investors, although, given the severity of the falls in global stock markets in October, the fall in confidence was relatively modest, the UK's Investment Management Association (IMA) has found.

These findings come from the IMA's second bi-annual Great British Investor report, published February 26, which looks at the behaviour, confidence, intentions and concerns of Britain's retail investors as at November 2008. The survey also includes two indices, developed by the IMA, to provide barometers of investor confidence and intentions:

According to the IMA, as at November 2008:

• The IMA GB Investor Confidence Index stands at 71 (on a scale of 0 - 200, 100 being neutral). In the six months since May 2008, confidence has swung negatively by 7 points from 78 to 71. This is a relatively modest fall given the events which took place between that time, including the collapse of Lehman Brothers, the UK government's rescue package for the banking sector and the FTSE 100 experiencing its biggest annual fall in the 24 years since the index began.
• The IMA GB Investor Intentions Index stands at 89 (on a scale of 0 - 200, 100 being neutral), indicating that investors are slightly more likely to withdraw from existing funds than to make new investments compared to May (when the index was 98), perhaps indicating that they would rather weather the storm rather than crystallise their losses.

Commenting, Richard Saunders, Chief Executive at IMA said: "The IMA GB Investor Confidence Index shows that investors are less confident than they were in May. This is not surprising. What does surprise me is the resilience of investors given the severity of the events in the market between May and November. A significant number clearly see opportunities, particularly for the longer term."

The survey's findings include:

• The percentage of investors who believe the economic climate has worsened increased from 39% in May to 70% in November.
• However, 38% still see current conditions as creating opportunities for investment, this being particularly true of male and younger investors.
• 44% of investors felt that if you see an opportunity to make a good return you should take the risk.
• Younger investors are most likely to increase existing investments in the next 6 months but are least likely to seek advice from an IFA
• Brand features more strongly in investors' minds, with a notable 11 percentage point increase, to 19%, 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. 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.

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