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Confidence with a dash of anxiety

Almost 2,000 people participated; the majority of them were experienced do-it-yourselfers, ROB CARRICK writes

Feeling cocky, are we?

So it would seem from the results of our second annual Globe and Mail investor sentiment poll. Long-term expectations for the stock markets ran high among the poll participants, as did optimism about the short-term prospects for income trusts. There was also a lot of frustration with mutual funds, although many indicated they've done well in the markets over all over the past five years.

The poll was conducted by putting a list of 24 wide-ranging questions on the Globeinvestor.com website during the first half of February. A total of 1,863 people were kind enough to participate, the majority of them were experienced do-it-yourself investors.

Last year's poll was conducted at a time when the stock markets were staging a spectacular rally from the depths of the bear market. Today, we can look back on a second consecutive year of fine results in 2004, and a promising start to 2005.

Investors seem to retain a sense of proportion about market prospects this year, even while stock prices in Canada move onward and upward. Asked how well the major stock indexes would perform this year, only 2.7 per cent predicted a sharp rise while 58.6 per cent saw a moderate increase and 23.1 per cent predicted little change. Just 4.5 per cent thought there would be a sharp decline in stock prices.

Long-term market expectations were a lot more bullish, though. A little over 48 per cent of participants said they expected the long-term average annual stock market return to be 8 per cent or more, including 13.5 per cent who expect to make 10 per cent a year on average. Almost one-third picked 6 to 7 per cent, which is what many financial planners would say is the prudent choice, while 7.5 per cent picked 5 per cent or less.

Stocks and income trusts got the most votes as the asset class that will perform best this year. Just over 45 per cent of the poll participants went with stocks, while trusts were the top choice of 44.2 per cent. Bonds and cash were chosen by 10.5 per cent of participants.

Choosing stocks over bonds and cash seems reasonable when you consider that bonds are vulnerable to an increase in interest rates and cash pays virtually nothing today. This explains why almost 78 per cent picked bonds and cash as the worst performers in 2005.

The fact that so many people believe income trusts will outperform everything else this year is noteworthy, given that trusts are coming off a five-year period in which their returns have vastly outperformed stocks. Some analysts believe the trust sector is ripe for a correction, but it's obvious that lots of investors don't agree.

With all the attention being given to trusts these days, it's worth noting that many investors still don't own them. Just under one-third of the people who participated in the poll didn't have any money in trusts, while 11 per cent had owned them for less than a year.

Almost 60 per cent of those who owned trusts said they bought them either to generate a flow of income through their regular cash distributions, or because they offered a better alternative to the low rates paid by bonds and guaranteed investment certificates. Just over 25 per cent said they bought trusts because they like being paid regular distributions better than waiting for long-term capital gains, while 15.5 per cent said they bought trusts because they have done well in the past few years.

Investor loyalty to trusts seems strong, but not unshakeable. Asked what they would do if the trust sector experienced a correction, almost one-third of poll participants who owned trusts said they would either ease out of these securities gradually or sell any they owned and walk away. Almost 25 per cent said they would buy more trusts, while 43 per cent said they would hold onto their trusts to continue collecting the monthly or quarterly cash distributions.

However you characterize the attitude toward trusts, it's a lot more positive than the one shown toward mutual funds. Virtually half of poll participants said they would invest less in funds looking ahead. Funds were also picked by investors as the investment that has caused them the most grief.

Despite this unhappiness with funds, poll participants were very upbeat about their personal investment returns. Compared with five years ago, 48.3 per cent said their portfolios were up nicely, while 31.4 per cent said they were up a bit. Just 7.2 per cent were down a bit and 5.6 per cent were down a lot.

While the poll results showed investors are generally in a confident mood, there was also anxiety. Asked about the extent to which their recent investing returns made them feel they'll be financially secure in retirement, only 29 per cent said they were confident they would have enough to retire on, while 41.2 were reasonably sure, 19.4 were unsure and 10.1 per cent were worried that they wouldn't have enough.

Maybe investors are cocky after their successes in the past couple of years, but they hardly seem deluded.

The profiles

The hotshots have spoken.

The 2005 Globe and Mail investor sentiment poll devoted several questions to learning more about the background of the 1,863 people who participated. A good number described themselves as experienced, knowledgeable, aggressive and likely to invest without the help of an adviser. Here's a quick profile of the poll participants.

47.2 per cent described themselves as being aggressive investors, focusing mainly on stocks or equity funds, while 45.2 per cent said they were middle-of-the-road types and the remainder were conservative types with little or no exposure to stocks.

34.6 per cent said they used an investment adviser, while 65.4 per cent were do-it-yourselfers.

62.3 per cent described their investing knowledge as sophisticated or reasonably strong, while 34.4 per cent said they had a moderate understanding of investing matters.

36.2 per cent were fully invested, while 24.3 per cent held some cash with an eye toward investing it soon and 33.7 per cent were in no hurry to commit their cash to the market. Just 5.8 per cent were going to hold on to their cash indefinitely.

2005 Globeinvestor survey

Almost 2,000 readers responded to our survey on Globeinvestor.com and Globeandmail.com between January 21 and February 14. All questions were optional and not all respondents answered all questions.

The markets

1. In 2005, do you see the major stock indexes...

rising sharply.......................50

rising moderately.............1,078

little changed.....................425

falling modestly.................204

falling sharply......................82

Total respondents......................1,839

2. The best-performing asset in 2005 will be ...

stocks................................828

bonds or GICs......................99

cash....................................93

income trusts.....................807

Total respondents......................1,827

3. The worst-performing asset in 2005 will be ...

stocks................................211

bonds or GICs....................721

cash..................................698

income trusts.....................194

Total respondents......................1,827

Are you ...

fully invested right now.......653

holding some cash, but looking

to invest it soon........................437

holding some cash, but in

no hurry to invest it...................608

planning to keep large amounts

of cash on the sidelines indefinitely.....104

Total respondents......................1,802

5. With regard to retirement, does the performance of your investments in the past several years make you ..

confident you'll have enough to retire on............532

reasonably sure you'll have enough.....................749

unsure if you'll have enough......................353

nervous that you won't have enough.............183

Total respondents.......................1,817

6. How long have you owned income trusts either directly or through mutual funds?

for less than a year............203

for one to two years.............78

for three to four years.........356

for five or more years..........314

I have not owned trusts......580

Total respondents......................1,831

Mutual funds

7. What is the main reason you have invested in trusts, either directly or indirectly through funds?

they've done well in the past few years...........211

they're a better alternative to the low interest rates on bonds and GICs............396

to generate a flow of income..........................406

You like being paid regular cash distributions as

opposed to waiting for longterm capital gains...................347

Total respondents......................1,360

8. If the trust sector experienced a downward correction, would you ...

buy more trusts.................348

hold onto the trusts you already owned to continue

collecting those monthly or quarterly distributions....615

ease out of trusts gradually............................301

sell any trusts you owned and walk away: 167

Total respondents......................1,431

9. The past year was an eventful year in the Canadian fund industry, including allegations of trading violations from securities regulators against four companies and across-the-board fee cuts from industry giant Fidelity Investments. Looking ahead, what are your plans for investing money in mutual funds?

will invest about the same..543

will invest more...................128

will invest less....................902

don't know.........................236

Total respondents......................1,809

10.If you plan to put less money into mutual funds, which alternatives do you see yourself using primarily?

individual stocks................941

exchangetraded funds........316

wrap accounts.....................31

closedend funds..................73

hedge funds........................54

Total respondents......................1,469

11.Do you believe that mutual fund management fees are too high?

No.......................................42

Yes..................................1,577

They're about right...............96

Don't care............................91

Total respondents......................1,806

12. Which statement best applies to mutual funds?

best investment for

the masses.........................177

an important portfolio building

block for many investors.....545

some funds are okay.........649

funds are best avoided......442

Total respondents.......................1,813

13. Some small no-load fund families have very low fees and good returns, but aren't available through traditional commission-based investment advisers. Which statement best describes your position on these funds?

You have bought funds from

these families either yourself

or through your adviser......497

You have considered buying

these funds families..........288

You decided that you would like

to invest in these fund families,

but have been prevented

from doing so by an adviser

won't sell them to you.........110

You have zero interest

in these families.................417

You don't know anything about

small no-load fund families.492

Total respondents......................1,804

14. Looking at how your mutual funds have performed in recent years, are you on the whole ...

very pleased with the

results.......................... 112

satisfied............................655

dissatisfied........................706

very unhappy.....................299

Total respondents......................1,772

My investing profile

15. You invest ...

with an adviser..................634

on my own.......................1,198

Total respondents......................1,832

16. You would describe your investment knowledge as ...

sophisticated.....................238

reasonably strong..............906

moderate...........................632

minimal...............................48

You know next to nothing

about investing....................12

Total respondents......................1,836

17. You would classify yourself as ... daily.

an aggressive investor focusing

mainly on stocks or equity

funds.................................857

middle-of-the-road type with

a mix of stocks and bonds....820

conservative type with little

exposure to stocks..............118

an ultraconservative investor

with zero in stocks................21

Total respondents......................1,816

18.. You expect long-term average annual stock market returns to be...

at 5 per cent or less....................137

at 6 or 7 per cent.............590

at 8 or 9 per cent.....................635

at 10 per cent.................247

at more than 10 per cent ...........219

Total respondents......................1,828

19. Compared with five years ago, your portfolio is...

up nicely................................878

up a bit ......................571

breaking even..........................137

down a bit.....................131

down a lot.....................102

Total respondents......................1,819

20.The investments in your portfolio that have caused you the most grief are...

stocks................................694

bonds................................ 72

income trusts............................ 20

mutual funds.....................793

exchange-traded funds.... 17

labour-sponsored funds............154

structured products................... 30

capital-protected notes.............. 10

Total respondents......................1,790

21. The investments in your portfolio that you are happiest with are...

stocks................................720

bonds................................ 98

income trusts............................585

mutual funds.....................307

exchange-traded funds.... 56

labour-sponsored funds............ 7

structured products................... 10

capital-protected notes.............. 13

Total respondents......................1,803

22. An investment you haven't tried before but plan to buy in 2005 is...

stocks................................ 63

bonds................................ 68

income trusts............................154

mutual funds..................... 20

exchange-traded funds....262

labour-sponsored funds............ 22

structured products................... 45

capital-protected notes.............. 51

none...................................... 1,075

Total respondents......................1,760

23. You will cutting back significantly on...

stocks................................179

bonds................................139

income trusts............................ 41

mutual funds.....................481

exchange-traded funds.... 15

labour-sponsored funds............ 82

structured products................... 13

capital-protected notes.............. 7

none...................................... 761

Total respondents......................1,719

24. You have been investing for...

less than a year....................... 16

five years or less.............217

10 years or less.....................390

more than 10 years.................149

Total respondents......................1,763

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