3 asset allocation takeaways from our investor survey

Kate shares some asset allocation ideas based on the results of BlackRock’s recent survey of 4,000 Americans.

BlackRock recently released the results of our fifth Global Investor Pulse survey, which queried 4,000 Americans about their financial lives to gauge current investor sentiment and behavior. As my colleague Patrick Nolan pointed out earlier this month, the survey results “offer a lot to contemplate.” He has already covered investors’ biggest worries (think longevity, healthcare and retirement) and how many Americans still hold more than half their investable assets in cash.

But there’s much more we can learn from the survey findings: What struck me as most compelling as I was reading through the responses was the potential asset allocation ideas they suggest. Here’s a quick look at three.

Overweight equities

Americans hold less cash today than they did in the second half of 2016, but they still hold 58% of their investable assets in cash on average, according to the survey results. To me, this implies that investors still aren’t all in when it comes to taking risk. Perhaps investors are still wary after the financial crisis or are worried that the slower growth world we live in today will lead to poor returns. Major market tops often coincide with maximum optimism and risk-taking. However, the fact that many individual investors still hold a sizeable chunk of their assets in cash is a sign that we aren’t yet at maximum participation in markets. As more investors gain confidence to come off the sidelines, equities probably have more room to run. I’d add this to the list of factors supporting more exposure to equities, including our expectations of a synchronized global earnings recovery and sustained economic expansion.

Overweight dividend growers

What would get the 45% of Americans considering shifting some of their cash into investments to move that money off the sidelines? Feeling confident about portfolio income. Survey respondents chose “knowing what income or dividends an investment will produce” as one of the top three catalysts for rotating more money out of cash.

I see this desire for income or dividends as further support for equity income strategies. Investors seeking income amid record low bond yields have flocked to stocks with consistent cash return in recent years. Roughly 75% of the income in a typical 60-40 portfolio of global equities and bonds now comes from stocks. We see equities remaining the dominant source of income going forward, though we prefer dividend growers—companies that increase their payout to shareholders—over dividend payers in this environment. We expect interest rates to gradually rise against a backdrop of sustained economic expansion, and high-yielding dividend stocks typically suffer more when rates rise than dividend growers, our analysis shows.

Don’t forget about fixed income

Another factor Americans said would make them more confident about shifting out of cash: “a guarantee that their capital is safeguarded.” I interpret this as a signal that demand for fixed income will probably stay high—even as the potential return from bond portfolios declines amid rising rates. In other words, don’t expect a Great Rotation from bonds to equities anytime soon.

Last year, investors shifted their money out of money markets into both bonds and equities. This year, based on the Global Investor Pulse survey results, investors’ moderate risk appetite coupled with their desire for safeguarded capital could mean ongoing demand for bonds, assuming investors are comfortable with low yields. However, we wouldn’t interpret this as a reason to overweight bonds over equities. Fixed income has a role in portfolios and we like credit over government bonds, but we generally prefer equities over bonds in a low-return world. Read more about the Global Investor Pulse survey results.

Kate Moore is BlackRock’s chief equity strategist, and a member of the BlackRock Investment Institute. She is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal. There is no guarantee that stocks or stock funds will continue to pay dividends. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

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