Barclays

Research reveals investors are compromising potential returns

• Investors lose more than 1 per cent a year by mis-timing markets
• Retail investors continue to lag behind institutions

Research commissioned by Barclays Wealth, a leading global wealth manager, has today revealed that investors' habit of chasing performance is costing more than 1 percentage point a year in returns. The academic paper from Cass Business School¹, the first of its kind into the behaviour of investors buying UK-regulated unit trusts and OEICs, highlights that investors are compromising potential returns, by investing at the peak of a stock market cycle, and not the bottom.

The study, compiled using performance figures and official sales data analysed fund flows between 1992 and 2009. It has discovered that market timing decisions by retail investors (when investing in equity mutual funds) has reduced their returns by an average of 20 percentage points over an 18-year period.

The research also found that under performance varied greatly, dependent on sectors. Investors buying global funds fared the worst, missing out on an average of 2.27 percentage points a year, compared to just 0.6 percentage points lost by seemingly more market savvy investors in Asian funds. Bonds investors performed better in general, by about 1 percentage point a year, but it is institutional investors who fare the best.

Retail investors continue to lag behind institutions when it comes to achieving returns and they are often at odds over which sectors to invest in. Retail investors have a track record of investing in funds which are 'on trend', but this often comes at a cost. The research highlighted that although there is a performance gap for retail investors, none such exists in the institutional space.

Andrew Clare, Professor of Asset Management at Cass Business School and co-author of the report comments: "Our results are consistent with US studies of retail investor behaviour. Over the 18 years covered by our study, a buy and hold strategy would have turned an initial investment of £100 into £311, however because of the poor market timing abilities of the average UK retail investor, the investment would only be worth £255. The difference of £56 arises because retail investors tend to invest more money after periods of strong market performance and withdraw it following periods of weak performance. The message from both sides of the Atlantic is clear: retail investors would be better off not trying to time the market."

Tony Lanser, Director, Barclays Wealth comments: "Retail investors have long been chasing returns by attempting to time the market but our research proves that this hasn't always delivered. When making an investment decision, investors need to consider a fund’s long-term outlook rather than simply playing the market for short term gains or capitalising on current trends. Following the market volatility of recent years, investors may have suffered from poor investment decisions and going forward need to ensure they build a diversified portfolio with the possibility of delivering long term returns."

For investors seeking a diversified portfolio, Barclays Wealth has recently launched GlobalMarkets², a new series of five risk profiled portfolios which invest cost effectively via ETFs across multiple asset classes globally. These portfolios are designed to suit different investor profiles, ranging from the risk averse to those willing to experience more volatility in the pursuit of higher returns and invest across a wider range of assets including equities, bonds, cash, commercial property, commodities and alternative trading strategies.

Tony Lanser, Director, Barclays Wealth adds: "As the research highlights, investors need to concentrate on spreading risk, via a diversified portfolio, instead of merely chasing performance if they want to achieve the best returns possible. The new GlobalMarket funds aim to help investors spread risk across a variety of asset classes, whilst leaving investors secure in the knowledge that Barclays investment specialists have hand-picked the stocks they believe will outperform the market, thus making the most of the investment opportunities available."

For further information contact:

Will Bowen, Barclays Wealth, Corporate Communications
+44 (0) 20 3134 7744

Or:

Katie Hayward / Livia Murphy
Lansons Communications
+44 (0) 20 7294 3631 / +44 (0) 20 7294 3693

 Follow us on Twitter