On average, investors expected an annual return of 9.5% but received just 6.2%, with the 3.3% shortfall representing an increase of 0.5% percent on 2013, where the gap stood at 2.8%.
Legg Mason said its global survey of more than 4,000 investors found investors in the UK rank among the “least dissatisfied” with their income investments, with a target return rate of 6.6% ranking just 1.5% above average returns of 5.1%.
The “most dissatisfied” investors came from Chile, where desired return rates of 10.4% against actual return rates of 5.2% created a shortfall of 5.2%.
Lee Robertson, chief executive at Investment Quorum, said the likelihood of obtaining the desired return rates was largely dependent upon risk tolerance.
“For more cautious portfolios, such high return rates seems to be asking too much,” he said. “On higher risk portfolios it could be more realistic, but it also comes with a greater risk of loss.
“Reducing the shortfall is both a case of lowering expectations and altering business.
“It may be a case of reducing charges to regain some of the shortfall, but there is definitely a resetting of expectations needed.”
Keith Churchouse, director at Churchouse Financial planning, also said the return expectations were unrealistic: “I think that is too high. We have enjoyed an equity return over the course of the last year, but that is only a recovery from where we came from, so expecting that sort of return is unrealistic.”
“The shortfall actually brings the return down to a much more realistic return rate, given the circumstances.
“Investors need to maintain diversity in their investments and monitor them regularly, these are both key points. They should pick off gains where available rather than putting all their eggs in one basket.
“It is a case of letting the investments evolve.”
The survey also found that over 70% of investors globally valued income generating investments as either important or extremely important.
However, Swiss investors were a notable exception to this, with just 42% of investors prioritising income-generating investments.
Matt Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management, said: “Income remains key for many investors around the world but it is clear there is a widening gap between their expectations and the income actually produced by their investments.
“It is interesting to note that the gap has increased due to investors’ rising income expectations rather than their investments generating a lower yield.
“With interest rates forecast to rise in many major markets over the next 12-18 months, this gap may begin to narrow over time, but investors should otherwise consider whether their portfolios have the right mix of income investments to meet their growing yield requirements.”
