Investors Optimistic About Markets

Active Investors predict they’ll beat the market this year, and even general investors expect strong investment returns.  Those are two of the insights from Fidelity’s  new survey of  clients.

The survey classifies investors into one of two groups.  There are Active Investors, who trade 36 or more times per year and there are General Investors who trade less frequently.  As a group, the Active Investors see opportunities via attractive valuations in the market, and a large percentage of these investors plan to reduce the level of cash in their accounts over the next six months.  This sounds quite promising.

On the other hand, 67% of these Active Investors are predicting that they will beat the market in the next twelve months.  This high figure is consistent with studies that show that individual investors who trade frequently also tend to be far too optimistic about their trading abilities.

The General Investors surveyed by Fidelity have increasingly been looking to Fidelity to provide guidance.  Fidelity reports that the firm has “provided portfolio guidance through more than 750,000 interactions via phone, investor centers, and through online asset allocation and planning tools (interactions are up 8 percent year-over-year)” over the first 6 months of the year.  At the same time, Fidelity reports that “more clients are choosing to hand over management of their investments to Fidelity’s managed account services team , with its new account openings growing 23 percent, and assets under management growing 40 percent year-over-year through June 2010.”

Not surprisingly, Fidelity also finds that the General Investors are a more conservative lot than the Active Investors.  Oddly, however, the median General Investor reports median annual investment return on their portfolios of 8% per year.  This is a very high expectation given that a June 2010 survey of analysts predicts an average equity risk premium for stocks (the amount by which stocks are expected to beat the risk free rate of return) of 5.1% per year.  The yield on 3-month T-bills is a proxy for the risk free rate and this is well below 1% per year at the time of this writing.

The take-away seems to be that the investors polled by Fidelity have a pretty rosy view of the both the future of equity returns and, in the case of Active Investors, their own trading abilities.

This entry was posted in Investors and tagged , , , on by .

About Geoff Considine

After earning his Ph.D. in Atmospheric Science, Geoff worked for NASA for 3 years, leaving to become a quantitative analyst developing trading and portfolio management solutions for an energy trading firm. In 2000, Geoff became a consultant focusing on quantitative methods in portfolio management. Geoff founded Quantext in March 2002. Geoff has published commentary and analysis in a range of publications. Quantext is a strategic adviser to FOLIOfn,Inc. (www.foliofn.com (http://www.foliofn.com)). Neither Quantext nor Geoff Considine is an investment advisor.

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