Investors failing to have a select core of investments and don’t review portfolios often enough, a study suggests

News - Savings

Written by Ray Clancy

Thursday, 04 November 2010 09:06

One in ten investors never review their portfolios and a quarter only on an ad hoc basis when they get around to it, new research reveals.

Some15% of investors admitted that they did not hold core investments within their portfolio, suggesting a scatter gun approach to investing, the research by J.P. Morgan Asset Management also shows.

And 32% of respondents with a core investment consider cash to be the main holding. This rises to nearly half (47%) of 18 to 34 year olds, it also found. However, when asked how much of their equity investments constitute a core holding, 36% stated equities made up less that 40% of their core, a very low percentage, while 32% of investors surveyed consider equities to be their core holding.

As current market conditions, particularly prevailing low interest rates, combined with the potential impact of future inflation over the longer term are posing serious challenges for portfolio construction the company decided to assess investors’ attitudes towards their core investments, that is the basic holdings that they have to achieve long term investment goals.

‘Investors cannot take for granted the importance of having a carefully selected core investment element to their portfolios. Core investments should be invested to deliver a long term return and protection against the future impacts of rising inflation and changing interest rates,’ said David Barron, head of Investment Trusts at J.P. Morgan Asset Management.

‘The survey results highlight that investors are not thinking strategically about their core investment holdings. A high proportion of respondents hold cash as a core investment, which is offering very little if no returns currently. Although equities can be more volatile in the short term, investors should look to the longer term and consider the additional benefits they can offer. In particular equities can help combat the impact of inflation that cannot be gained from cash or some bonds,’ he explained.

‘The percentage of a portfolio invested in core assets depends on the individual investor’s needs and objectives. The balance between the core investments and higher risk satellite investments will be a reflection of these requirements and investors’ attitude to risk. These will change periodically and it is important all elements of their portfolio are considered at least annually,’ he added.

Barron cited three J.P. Morgan Asset Management investment trusts which could be considered by investors for inclusion in their core investments. JPMorgan Claverhouse Investment Trust seeks to achieve capital and income from UK large cap companies. The investment trust has paid investors an above inflation dividend for 37 consecutive years. Another investment trust is the JPMorgan American Investment Trust which focuses on investing in large cap US stocks based on a stock picking principle. The third investment trust highlighted by David Barron is the JPMorgan Overseas Investment Trust. The focus of the investment trust is to invest in companies in all geographical locations using an extensive team of analysts.