Investor behaviour in different countries is closely linked with respective retirement savings rules, a new Morningstar study has found.
The Morningstar report released last week says investors based in jurisdictions with defined contribution regimes generally have a higher risk tolerance as well as a greater appetite for managed funds and financial advice compared to global peers.
Investors exposed to defined contribution retirement schemes – notably, in Australia, NZ, UK and the US – gain familiarity “with equity market volatility and tend to build or be defaulted into more-aggressive portfolios with higher equity weightings and lesser bond and cash exposure,” the study says.
“In contrast, markets with defined-benefit schemes and, in some cases, supported by universal healthcare and a comprehensive social security net, show a reduced need for self-reliance and feature investors who are typically more conservative and take lesser equity market risk in portfolios,” the Morningstar report says. “This includes countries such as France, Germany, and Japan.”
Greg Bunkall, Morningstar Asia-Pacific data director, said the results show a wide differential in cash holdings between investors in the two broad retirement savings camps.
“I was surprised to see how different the markets were in their attitudes to cash,” Bunkall said.
He said investors exposed to defined contribution retirement schemes also appear more comfortable with saving in other managed fund products.
The inaugural Morningstar report titled ‘Global investor portfolio study 2022: demystifying investor portfolios in a diverse world’ ranked NZ highly for its international outlook.
“New Zealand has a notable lack of a home-market investing bias,” the study says. “The New Zealand equity market is small and concentrated compared with the rest of the world, and this is recognized by many New Zealanders who are happy to invest offshore.”
Bunkall said the broad global diversification leaves NZ, and Australian, investors less exposed to “idiosyncratic country risk” compared to those in many other jurisdictions where home bias rules.
However, Morningstar slammed KiwiSaver as a relative retirement savings lightweight for its too-easy opt-out rules, low contribution rates and non-compulsion.
“Compared with markets like Australia and the UK, the Kiwisaver, retirement scheme may not guarantee New Zealanders the ability to fully fund their retirement,” the report says. “This is because accountholders are able to suspend contributions at will, having only a 3% default contribution rate as standard, and allowing people to withdraw from their KiwiSaver accounts to fund a house purchase.”
Unlike the Australian superannuation system, KiwiSaver was established in 2007 to bolster retirement savings rather than replace the universal government pension.
But Bunkall said the different approaches have affected investor attitudes in both countries.
“If you look at the two regimes, Australian investors tend to have more long-term thinking because of the pure-play retirement savings plan,” he said.
The Morningstar analysis reviewed market data across 14 countries covering Europe, Asia-Pacific, North America and two emerging economies – India and China.