UAE investors overestimating returns, volatility and lack of growth challenges

Old Mutual International and investment manager Quilter Cheviot have found that investors in the UAE are susceptible to over-estimating the potential for investment growth in 2019. On average, UAE investors hope to achieve an optimistic 7.3% return in 2019, despite stating that their average investment return in 2018 was 5.5%. Just under a quarter of those surveyed, 23%, believed that their investment returns would exceed 10% and just 5% of respondents expected returns to be under 2%.

The global financial markets have been resilient to what has been a fairly turbulent year considering the US-China trade war, Brexit and various oil crises. Even though the markets performed better than expected, most respondents, 64%, blamed market volatility as the reason why their investment returns fell below expectations.

When asked why their expectations for investment returns had fallen over the past 12 months, the second most popular answer, 33%, was that it is harder to find investments that provide growth. This is nearly three times more than the number of respondents, 12%, who picked the same answer last year.

Paul Evans, Head of Region, Middle East and Africa, Old Mutual International, comments: “Having a positive outlook in regards to your investments is not inherently bad, but current global macro-economic events should be balanced with the realistic view that markets are unlikely to perform as well as years gone by.

“If a positive view is not tempered by a realistic one, it’s easy to see how a drop in the value of an investment could prompt someone to cash out due to their overly optimistic expectations getting shattered.”

“A financial adviser can help clients create realistic expectations and crucially stay invested for the long-term. Riding out volatility is vital if an investor is to enjoy the type of returns our research shows they are expecting.”

Mark Leale, Head of Quilter Cheviot’s Dubai office, adds: “Managing investors’ expectations in relation to long term investment returns is a key part of financial advice, but equally important is to ensure understanding of how an investor’s attitude toward risk impacts these potential returns. When reviewing the suitability or success of any investment it is essential that this is related to the original brief, remembering that it is the return, over the long term, within your risk profile that matters.”

“It is only natural to be cautious, particularly if one is new to investing, but taking an overly defensive stance may mean that the value of your investments fails to keep up with inflation. At the opposite end of the scale, those respondents seeking a return in excess of 10% per annum need to be able to tolerate a high degree of risk and volatility. It is essential also to remember that whilst an investment may produce double digit returns in one year, it is highly unlikely to do so consistently. We would urge investors that when setting any return expectations, this should be with a long term average in mind. Time horizon therefore plays an important part.”

“It is through detailed risk profiling and ongoing reassessment that we can help ensure that investors are taking a suitable level of risk and that they understand the potential range of returns and make appropriate choices. Of course, at different stages of an investor’s life, they may wish to adopt differing risk profiles and therefore flexibility in the investment solution is an important consideration when looking at the options available.”