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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.
Many investors want to be more long term. But as we found in a recent survey of 200+ asset owners, there are numerous hurdles, with market volatility, manager performance, board pressure, and career risk at the top of the list. With that in mind, I focus this quarter on the benefits of long-termism and recommend next steps for those who want to incorporate more long-term thinking in their portfolios. The ideas I offer are based on a multifaceted research process, including interviews with Wellington portfolio managers, asset owners, and experts in the field of long-term investing, as well as a quantitative analysis of the link between long holding periods/low turnover and alpha.
In the course of this project, I arrived at a number of conclusions:
Before delving into the research that led to these conclusions, it’s worth considering the meaning of “long term.” We asked about 250 asset owners for their definition, and the answers varied greatly, given different starting points and policy constraints. Roughly 45% said “5 to 10 years,” just under 45% said “over 10 years,” and about 10% said “three to five years.”
Ultimately, though, I think being long term is less about a specific time horizon and more about making good decisions. Investment success can happen across a range of time horizons. Plenty of hedge funds trade very actively and achieve good results, for example. But institutional asset owners, constrained by size, structure, and governance, generally can’t run their portfolios like hedge funds. For these organizations, there is real “alpha” in creating structures and practices that allow for good decisions through a longer-term lens and help avoid falling victim to short-term pressures. With that as my premise, I next considered the advantages of being longer term, from an intuitive and a quantitative perspective.
Intuitively, I would expect several advantages to accrue to long-term investors, including additional…