Low interest rates prompt rush for risk assets

Financial advisers are predicting a significant return to the stock market in 2010, with almost three quarters (72 per cent) expecting an increase in the number of clients looking to invest in equities over the coming 12 months, according to new research commissioned by Prudential.

Confirmation of the findings come on the back of the good performance of the markets in the second half of 2009 and as low interest rates continue to penalise UK savers.

While Independent Financial Advisers (IFAs) questioned for the Prudential study predicted a strong return to the stock market in 2010, they also believe that investors will look to adopt a more cautious approach on the back of the worst recession since World War II.

Almost three quarters (73 per cent) of IFAs expect clients to invest in cautious managed growth funds, with two thirds (66 per cent) expecting to see investment in defensive funds and 70 per cent believing investors will also look to spread risk by buying into multi-manager funds.

In addition, more than half (55 per cent) of IFAs expect clients to invest in absolute return funds and 68 per cent expect to see ongoing investment in bonds.

In contrast, just 18 per cent expect to see clients looking to invest in individual stocks and shares and less than half (46 per cent) expect clients to invest in higher risk growth funds.

Andy Brown, Director of Investment Funds, Prudential said: "Given the performance of the markets in  the second half of last year coupled with the ongoing poor rate of return for cash based savings, it is perhaps unsurprising that IFAs expect to see more clients looking to return to the stock market and buy into equity based investments in 2010.

"However, in reality not all equities will show equal growth over the coming 12 months and choosing the right time to invest in the right asset classes is key. We share the views of the IFAs surveyed and believe that good fund managers and balanced portfolios will do well in 2010 and beyond as investors look to build portfolios to deliver both performance and greater security."

The survey also found that 71 per cent of IFAs believe the recession will have a long term impact on the way clients look to invest and prompt them to adopt a more cautious investment strategy and be more reliant on professional advice.  Of these advisers, more than four fifths of advisers questioned (83 per cent) said they believe clients will be more cautious with investment decisions and favour more balanced portfolios, with 68 per cent of IFAs expecting investors to utilise independent financial advice when choosing investment funds.

To meet this demand, Prudential recently launched five new actively-managed risk-rated multi-asset funds designed to help advisers focus on client management through an extension of its partnership with independent investment specialist Old Broad Street Research (OBSR).

The partnership gives advisers access to the asset allocation expertise of Prudential's Portfolio Management Group1 (PMG), which currently manages over £100 billion of capital, and the fund selection and recommendation experience of OBSR, in one place.

The funds are actively risk managed in line with their portfolio investment objectives and may help reduce the risk of potential TCF issues through running static portfolios.

The five portfolios - Defensive; Cautious; Cautious Growth; Balanced; and Adventurous - are available on a range of Prudential personal pension products, income drawdown, onshore and offshore bonds.