Financial Services

Breaking the mould

September 01, 2008

Global

September 01, 2008

Global
Monica Woodley

Editorial director, EMEA

Monica is editorial director for The Economist Intelligence Unit's thought leadership division in EMEA. As such, she manages a team of editors across the region who produce bespoke research programmes for a range of clients. In her five years with the Economist Group, she personally has managed research programmes for companies such as Barclays, BlackRock, State Street, BNY Mellon, Goldman Sachs, Mastercard, EY, Deloitte and PwC, on topics ranging from the impact of financial regulation, to the development of innovation ecosystems, to how consumer demand is driving retail innovation.

Monica regularly chairs and presents at Economist conferences, such as Bellwether Europe, the Insurance Summit and the Future of Banking, as well as third-party events such as the Globes Israel Business Conference, the UN Annual Forum on Business and Human Rights and the Geneva Association General Assembly. Prior to joining The Economist Group, Monica was a financial journalist specialising in wealth and asset management at the Financial Times, Euromoney and Incisive Media. She has a master’s degree in politics from Georgetown University and holds the Certificate of Financial Planning.

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Breaking the mould: a question of personality is a Barclays Wealth report, written in cooperation with the Economist Intelligence Unit.

Written by the Economist Intelligence Unit on behalf of Barclays Wealth, this sixth volume of Barclays Wealth Insights examines the behaviour and attitudes of wealthy investors during times of volatility. It is based on two main strands of research.

Volatility in financial markets draws different responses from wealthy investors

Around half of the respondents to the survey say that they intend to increase allocation to cash in the current environment, while just under one-third would switch their financial adviser. Reactions differ depending on age and gender. Older investors are less likely to increase allocation to cash, perhaps because they have experience of previous cycles. Men are also more likely to increase allocation to cash and switch financial adviser than women. This reflects a general finding of the research – namely that men tend to be more active in changing their portfolio in response to new information.

Property remains an attractive investment for the wealthy, especially in emerging markets

Current variations in the performance of house prices around the world have a bearing on respondents’ appetite for increasing allocation to property. In countries such as the UK and US, property prices are falling, but in many Eastern European and Asian countries, they are rising. Respondents from the main emerging markets countries (BRIC + N11)1 were more likely than those from the developed countries of the Organisation for Economic Co-operation and Development (OECD) to increase allocation to property in the current environment. Emerging market investors have fewer choices than their developed country peers, and therefore a stronger weighting towards property can be expected, but the survey results also suggest continued strong confidence in property as an investment in key emerging markets. Even in regions where property prices are falling, such as North America and Europe, some investors still plan to increase their distribution to this asset allocation, perhaps hoping to take advantage of more attractive valuations, or as a means of diversification.

Investors can become pre-occupied with the performance of individual investments, more than that of the overall portfolio

The research suggests that there is a wide range of monitoring behaviour but in general, respondents examine the performance of specific stocks more regularly than their overall portfolio, with just over half of respondents monitoring this aspect of their investment either weekly or daily. This is a common reaction to volatility. A focus on the performance of specific assets can cause investors to take decisions that may make sense when considered on the basis of a specific asset, but which are less rational in the context of the overall portfolio. Too much attention to specific stocks and monitoring too often can lead to over-trading.

Too much information can lead to overload, impacting on investor behaviour

Individuals have never had so much financial information at their fingertips, with a proliferation of business coverage in the traditional press and online. Too much data, however, can have a negative impact on how investors behave. This can lead to levels of overconfidence, which in turn can result in excessive trading and the tendency to over-monitor portfolios.

While too much information may cause problems, some degree of data is essential and the survey suggests that for today’s wealthy investor, there are three main categories of sources of financial information: personal relationships, such as friends, family and peer groups; the media; and professional advisers, such as private banks, business advisers and brokers.

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