Canadian investors appear to be taking a cautious approach to high-priced equity markets, according to a new assessment of investors’ approach to risk published on Monday from fToronto-based Vanguard Investments Canada Inc.
Vanguard’s new indicator of investor risk appetite, known as the Canadian Risk Speedometer, declined notably in September, the company reports.
The one-month risk reading “fell significantly” in the month, compared to August, the company says in its announcement, and it also signals a slightly below-average investor risk appetite for the third quarter.
For the year, the risk reading is “moderately above average”, Vanguard says, “although the recent trend is moving to investor preference for less risk in their investment portfolios.”
The risk reading aims to represent how investor risk appetites are trending based on cumulative net cash flows into high-risk and low-risk asset categories (Canadian mutual funds and ETFs) as a percentage of total assets under management, relative to historical data.
“Canadian investors have been staying disciplined in their risk appetite, given above average stock market returns and below average volatility, which is a positive sign,” says Todd Schlanger, senior investment strategist for Vanguard Investments Canada, in a statement. “This is in contrast to the typical pattern we have seen in similar periods of strong stock market returns. This may be reflective of increased investment discipline and prudent rebalancing strategies on the part of investors.”
“Given the magnitude and duration of the bull market in stocks, we would expect investment risk appetite to be higher, given similar types of market environments in the past,” adds Fran Kinniry, principal in Vanguard’s investment strategy group. “With risk appetite at average or lower levels, we appear to be seeing a trend towards broad-based asset allocators rather than fund selectors in the Canadian market. If true, we see this as a very positive development for investor outcomes and advisory practices.”
According to Vanguard, the global bond category has received the greatest total inflows over the one-month, three-month, and 12-month periods. By contrast, Canadian equities have seen the greatest volume of outflows for the same periods.
“Canadian investors have been embracing the benefits of global diversification and reducing their positions in more niche or specialty investment products,” says Schlanger. “Accordingly, global bonds were a popular choice for investors along with global equities, as investors seek to strike a balance, lower their investing costs and mitigate risk.”
Photo copyright: bolina/123RF