US Equities Offer the Best Opportunities in 2015, Say Investors

Majority of affluent US investors surveyed by Legg Mason say they are maintaining their equity allocation over the next 12 months.

According to the 2015 Legg Mason Global Investor Survey, 85% of 458 affluent US investors surveyed said US equities “offer the best opportunities over the next 12 months” among all domestic and global asset classes. This is an increase over the 74% who said the same going into 2014.

In addition, 63% said they are maintaining their equity allocation in 2015, while more investors (32%) expect to increase their allocation to equities over any other asset class. Only 6% said they intend to decrease their allocation to equities in 2015. The majority (89%) said they are optimistic about their investments for 2015.

“Investors are looking for the US equity market’s strong run to continue,” said Matthew Schiffman, Global Head of Marketing for Legg Mason. “Last year, investors told us they had great confidence in US equities for 2014 and they were right: The S&P 500 was up over 11%. This year, we’re seeing even more investors expressing confidence in the US equity markets, and this is concerning.”

Schiffman continued:  “Overconfidence can lead to a degree of complacency that could prevent investors from paying close attention to their overall financial plan and how they have allocated their assets as their own needs change. Investors have not changed their asset allocation since we started measuring investor sentiment three years ago, which could be another sign of complacency creep.”

Going Global

Investors surveyed have an average of 13% of their assets invested internationally; 41% of investors said they “will be more focused on international investments in the next year compared to last year.”

“Investors may be more willing to travel abroad than invest there,” Mr. Schiffman said. “This goes back to the potential for complacency creep as investors continue to show a preference for investing at home. Opportunities abound globally and should be a consideration in any strategic asset allocation.”

The top three benefits respondents hope to gain by investing internationally are:

1. Diversifying risk across different markets

2. Potential for higher returns than in the US

3. Greater range of investment choices

Investors see China and Japan as the countries representing the best non-US market investment opportunities over the next 12 months. According to the respondents, the top ten countries (excluding the US) are:

1. China

2. Japan

3. Australia

4. Brazil

5. India

6. Europe (excluding the UK)

7. UK

8. Hong Kong

9. Singapore

10. Mexico

Good News for Income-Oriented Investors:  Investment “Income Gap” Shrinks Again

Since 2012, Legg Mason has been measuring the investment “income gap” – the difference between what investors seek from their income-producing investments and what they actually receive. This year’s survey reveals that the income gap has been cut in half since inception.

Having income-generating investments is considered a priority to 82% of investors surveyed. Investors also said that on average, 51% of their portfolios are invested in income-producing assets. The top three asset classes they invest in to meet their income needs are:

1. Equity income funds

2. Investment grade bonds

3. High yield bonds

Schiffman stated: “Clearly, only time will tell if investor confidence in the US equity markets will be rewarded again. Regardless of the market’s performance, we encourage investors to be mindful of overconfidence and complacency creep.  We also encourage investors to work with financial advisors who will help them take a realistic, active approach to managing their assets recognizing that markets, and their needs, change over time.”