- About Us
- My Account
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Question: Could rising short-termism actually provide an alpha opportunity for longer-term-oriented equity investors? Ironically, yes in my view. Let’s look at today’s financial technology (fintech) sector as an example.
I’m concerned about growing froth in the fintech initial public offering (IPO) market because much of the recent activity there signals that investors are continuing to take on more and more risk in pursuit of hoped-for near-term rewards. Here are some behaviors that, to me, highlight the potential for endemic short-termism among fintech market participants:
One of my colleagues, Multi-Asset Strategist Adam Berger, has published research focused on the merits of having a long-range investment orientation and a healthy dose of patience. One of his essential takeaways: “For asset owners, the key to success as a long-term investor is not being swayed by short-term events — asset owners should cultivate patience.”
That is easier said than done for most investors and, for many, appears to be particularly difficult to pull off in the current “meme-stock” era. The more capital markets democratize and the news cycle accelerates, the more markets appear to be moving on short-sighted data points rather than a fundamentally rooted understanding of the longer-term story. This puts pressure on many asset owners to compromise their research-driven convictions and “follow the herd.”
One example of how great this pressure has become: In an April 2021 survey of US individual investors by the Yale International Center for Finance, 67% of respondents said they thought the stock market was too high. But 76% said they also believed the market would rise over the next year. The “greater fool” theory appears to be pervasive in today’s market, suggesting that the short-termism described above is not confined to fintech investors.
As I see it, the outperformance opportunity for long-term investors here is two-fold:
1) Maintaining a long-term perspective in the face of rampant short-termism can help asset owners mitigate downside risk by limiting their exposure to assets that have been overinflated by that short-termism.
2) A disciplined, buy-and-hold approach could help patient investors accumulate positions in quality assets whose long-term performance prospects may be largely underappreciated by the broader market.
The fintech sector is a microcosm of this long-term opportunity. The growth potential is tremendous, yet arguably no tech frontier demands investor patience and deep research more than fintech. Three key forces look poised to challenge short-term assumptions about long-term outcomes and generate opportunity for patient fintech investors:
1) Incumbents will fight for their stake in the fintech future. From banks to credit card networks to scale processors, incumbents are trying to “out-innovate” the innovators or, at the least, leverage their size and scale to hold back insurgents. As of this writing, I think many incumbents look undervalued relative to their upstart competitors, despite obvious advantages.
2) The fintech ecosystem is fractured and ripe for consolidation. As we’ve seen recently, industry consolidation can swiftly alter investor perceptions and cause fintech assets to reprice. With fintech M&A activity clearly on the rise, predicting and analysing this activity will become increasingly important as the ecosystem matures and network effects intensify.
3) The regulatory landscape remains murky. Regulatory actions by the SEC or other government agencies could stifle or even derail some fintech companies’ business models. It is therefore imperative, in my judgment, that fintech investors consider regulatory risk in their long-term estimation of a company’s growth trajectory.
Beyond fintech, investors’ recurring tendency toward short-termism has long been evident across market sectors and asset classes, at times pushing prices to unsustainable heights. To paraphrase Bill Gates: “People often overestimate what will happen in the next two years and underestimate what will happen in the next 10 years.” Patient, discriminating investors could be well positioned to harness that longer-term upside, while potentially minimizing exposure to short-term asset mispricings.
2023: The year of disinflation for the US economy
In the coming year, US Macro Strategist Juhi Dhawan expects to see inflation begin to decline, the economy adjust to higher interest rates, and labor markets feel the pain of restrictive Fed policy.
Markets take US election results in stride (for now, anyway)
Client Portfolio Manager Jitu Naidu weighs in on the markets' response to, and other potential implications of, the recently held US midterm elections.
Inflation, rates, and volatility: The best defense is a good offense
Insurance Strategist Tim Antonelli shares his latest multi-asset views for insurers, including the need to balance defensive portfolio strategies with continued income and return generation.
2023 Macro and rates outlook: Goodbye easy money, hello regime change
Macro Strategist John Butler highlights the impact of macroeconomic "regime change" on global inflation and interest rates, with potential implications for investors.
Can agency MBS bounce back from dismal performance?
Fixed Income Portfolio Manager Brian Conroy and two colleagues weigh in on the mortgage-backed securities (MBS) market in the wake of a very challenging month.
All figures are for the Wellington Management Group of companies as at 30th June 2022.
Past performance is no guarantee of future performance and can be misleading. Funds returns are shown net of fees.
Source: Wellington Management
Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk. The price and value of investments is not guaranteed and can go down as well as up. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. If an investor is in any doubt as to the suitability of an investment in a fund, an investor should consult an independent financial advisor. The information on this website does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in any security including, but not limited to, shares in the funds. An investor should only invest in a fund once that investor has carefully read and understood the offering documents for the relevant fund, which are the relevant prospectus, and Key Investor Information which contain further information on the risks and features of the fund, and the latest financial reports and any other offering documents for the fund which are available on this Website. Unless stated otherwise data is as at previous month end.