Increase in appetite for high-risk investments during pandemic

Covid-19 uncertainty and concerns caused by rising inflation behind increasing risk appetite.

The Covid-19 pandemic has led people to turn to higher-risk investments, according to a global survey of more than 23,000 people from 33 locations.

The survey, from fund management firm Schroders, found that investors feel compelled to take on greater risks to compensate for Covid-19 uncertainty and concerns caused by rising inflation levels.

The survey revealed that amid the pandemic 37% of people are more willing to allocate to high-risk investments. This increased to 44% for the 18 to 37 age group.

Among the investments people are increasingly turning to that were previously perceived as being too risky are electric vehicle-related stocks, biotech or pharma funds, internet and tech stocks, and cryptocurrencies.

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Lesley-Ann Morgan, head of multi-asset strategy at Schroders, said: “Our research indicates that many people feel they now have to take on more risk in pursuit of returns given the current pandemic.

“The challenging economic conditions that we have seen over the past year have likely played a part in this. Amid the low interest rate environment, riskier investment choices have unsurprisingly become more compelling, especially for younger investors.”

While on a global scale Schroders’ survey points to an increase in appetite for higher-risk investments, fund investors in the UK have been showing greater levels of caution lately.

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Funds classed as ‘other’, including targeted absolute return, volatility managed, unclassified, and the newly launched Commodity/Natural Resources and Infrastructure sectors, were the best-selling asset class in October, according to the Investment Association (IA).

Schroders’ survey also found that people have high expectations for returns. More than half of people aged between 18 and 50 said they expect returns of more than 10% a year over the next five years. Those aged 51 and over were slightly less bullish, with 45% and 38% of those in the 51 to 70 and 71+ age categories expecting 10%-plus returns.

These figures are far in excess of what could be considered a realistic annual return. According to the Credit Suisse Global Investment Returns Yearbook 2021, over the past 121 years the average annualised real return (including inflation) for UK shares is 5.4% and 6.6% for US shares.