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Will Investors in the U.S. & Europe Get Better Returns in 2002?

Will Investors in the U.S. & Europe Get Better Returns in 2002?

by Dennis Jacobe

Last year was lousy for investors in both the U.S. and Europe, as most had little or no return on their investment portfolios. In a new Gallup/UBS "Index of Investor Optimism -- U.S." poll (Feb 1-17*), U.S. investors tell Gallup that they received an average return of less than 1 percent (0.6%) on their portfolios over the past 12 months. At the same time, in the new "Index of Investor Optimism -- EU5" poll, European investors say they did even worse by having a negative average return of about 1 percent (-0.9%) on their portfolios during the same period.

Still, investors expect much better returns this year. U.S. investors tell Gallup that they expect an average return on their portfolios of 9.5% over the next 12 months. And European investors say they expect an average return of 7.9% on their portfolios over the same period. This is despite the fact that overall investor and consumer confidence plunged in February and that Enronitis continues to plague Wall Street.

Of course, when put in perspective, current U.S. investor rate-of-return expectations are not that exuberant. Gallup has asked investors for their expectations in the past; the anticipated rates of return averaged in the double digits much of last year and in each of the three years prior to it (Dec. 1998, Dec. 1999, and Dec. 2000). Investor exuberance was particularly telling in December 1999 when investors suggested that they expected to receive an average rate of return on their portfolios of 18.4% in 2000.

Of course, investors can sometimes get carried away, particularly given the way the markets have improved since Sept. 11. Still, a strong recovery will have to take hold in both the U.S. and Europe in the months ahead if investors are going to get the returns they are expecting in 2002. In recent testimony to the House Financial Services Committee, Federal Reserve Chairman Alan Greenspan said the Fed expects growth (real GDP) of 2 1/2% to 3% during 2002. If this is not the case, investors are going to have another big disappointment this year.

Rates of Return Plunged Last Year

In December 1998, American investors reported that their portfolios had given them an average 14% rate of return over the previous 12 months. Half said that they had an 11% or greater rate of return on their investments. By December 1999, investors were reporting an even greater 18.1% rate of return on average for the year.

Things changed dramatically just one year later, as investors reported that the average rate of return on their portfolios was 9.5% in December 2000 -- only half what it had been a year earlier. Still, this is not a bad rate of return by the standards of most years.

By December 2001, however, investors were saying that they had seen essentially no return on their investments for the year, as they reported an average rate of return of -0.8%. In February 2002, they reported only a modest increase, saying that the average rate of return on their portfolios was 0.6% over the past 12 months. Obviously, the past 12 months have not been good for most U.S. investors.

Neither was last year a good one for European investors. In October 2001, European investors told Gallup that they had an average rate of return on their portfolios of -1.3%. As of February 2002, they are reporting a very similar -0.9% average rate of return on their investment portfolios over the past 12 months.

Investors Look for Better Returns This Year

As investors look forward to 2002, however, they expect much better rates of return than they saw last year. On average, U.S. investors expect to obtain a 9.5% average return on their portfolios over the next 12 months. Clearly this is optimistic in light of the fact that they got virtually no return from their investments last year. On the other hand, that figure is lower than the 10.8% rate of return investors said they expected last year at this time. And of course, U.S. investors' rate-of-return expectations are now far below the 18.1% average rate of return they said they expected in 2000, and the 13.5% rate they voiced in December 1998.

European investors have only slightly lower rate-of-return expectations than their U.S. counterparts. On average, European investors expect to obtain a 7.9% average return on their portfolios over the next 12 months. This is down from the 8.7% average rate of return they expected last month.

* Results are based on interviews with 1,001 U.S. investors, aged 18 and older, conducted Feb. 1-17, 2002, and approximately 200 investors each in France, Germany, Great Britain, Italy, and Spain.


Gallup https://news.gallup.com/poll/5416/Will-Investors-US-Europe-Get-Better-Returns-2002.aspx
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