Annual returns for UK investors are expected to almost halve due to Brexit-related market volatility, according to new research from Natixis Global Asset Management.
The research found that UK-based financial advisers, 300 of whom were canvassed, expect long-term annual returns above inflation of just 3.8 per cent, down from 6.8 per cent in 2015.
The firm also found that four in five advisers (78 per cent) believe that stock market volatility seen since the UK voted to leave the European Union will continue to run at high levels, while over half (55 per cent) say volatility is the main topic their clients want more information about.
Chris Jackson, chief executive of Natixis, says the findings show the importance of both active portfolio management and diversification.
MANAGING RISK INCREASINGLY IMPORTANT
'With expectations for returns falling over the last year, the importance of true active management is even more important than ever,' he says, adding that 'portfolios that are more diversified do tend to produce better returns with lower risk'.
Alternative investments, Jackson continues, 'are the missing link in achieving true portfolio diversification' due to being uncorrelated to stock markets. The majority of advisers surveyed by Natixis say they need to increase their use of non-correlated asset classes to better manage client risk.
Meanwhile, Adam French, UK co-founder of digital investment manager Scalable Capital, believes the wealth management industry has also been poor at quantifying risk for UK clients by labelling portfolios and funds with 'vague terms such as moderate risk'.
Separate research carried out by YouGov on behalf of Scalable reveals that a quarter of investors are more worried about fluctuations in their investments now than they were before the Brexit vote.
Scalable's survey, which polled the views of 1,100 investors, also shows that almost one in five (17 per cent) have a poor understanding of the risk of loss in their investment portfolios, a 'frankly alarming' result, according French.
He says it is important for investors to carefully consider how much of their capital they are comfortable putting at risk when investing. 'Major events like Brexit can really sharpen the focus and draw investors' attention to the fact that their invested capital can fall as well as rise,' he adds.