Before the dawn of populism, as excess liquidity bloated asset prices without stoking inflation, pension plans’ interest in long-term investing had waned somewhat. The length of the holding period used in defining long-term investing had been falling.
However, as populism gained momentum on both sides of the Atlantic since the Brexit vote in 2016, the trend has started to reverse. In one of our recent surveys, 44% of our respondents reported that the role of long-term investing will ‘rise’, 48% expect it to remain ‘unchanged’ and only 8% expect it to ‘fall’*.
Long-term investing has come to the fore as geopolitical events and their impacts have proved hard to forecast. Timing the market is a fool’s errand. Few pension plans have the skills and nimbleness to engage in it. In today’s environment, investing is also about sifting the relevant investment signal from the general market noise.
Old style volatility is set to come back, widening the dispersion of returns and reducing correlations within and between asset classes. Furthermore, evidence shows that the dispersion of returns is positively correlated with the time period: the longer the period, the greater the dispersion, and the greater the opportunities for differentiated performance based on a disciplined process.
The old wisdom that true value always triumphs in the end is gaining renewed currency. That means investing in quality assets, so as to gain more by losing less and outperforming over a full market cycle, while allowing more time for risk premia to emerge.
If you are a subscriber to the Financial Times, I have developed this argument in more detail in my article in today’s FTfm (15th April 2019).
*Back to long-term investing in the age of geopolitical risk available from: http://www.create-research.co.uk
Amin Rajan – Research Update 