Investment Beliefs Influence Equity Strategy Decisions, Watson Wyatt Study Reveals
Hong Kong, December 2007 – Institutional investors expressed their investment beliefs in equity strategies and favoured Long-Short ("L/S") and Long-Term Long Only ("LTLO") strategies among non-traditional equity strategies, in a recent Watson Wyatt Investment Consulting poll.
Around 50 fund trustees, sponsors and managers attended at a recent Watson Wyatt Ideas Exchange seminar. The seminar explored six different equity strategies and demonstrated the importance and influence of investment beliefs in investment decisions. Participants discussed how they would need to allocate capital across the six different equity mandates within equities, to be consistent with their conviction in the underlying investment beliefs.
Although respondents still expressed preference for a significant exposure to traditional active and passive equity strategies (23% each), the main outcome of the discussion showed an 18% allocation on average both to L/S and LTLO (see tables in "Notes to the editors" below). However, the low (5%) allocation to 130/30 strategies was perhaps surprising in contrast with the higher allocation to L/S, given the hype and market attention being given to 130/30. The remainder (13%) was allocated to Beta Primes such as fundamental indexes.
Anthony Chan, Principal Investment Consultant, said: "Managing equities through L/S or LTLO requires adequate fund governance. In addition, the quality of underlying investment beliefs is critical in implementing and assessing these strategies. For example, funds that claim to have a long-term time horizon should ask themselves whether their decision-making behaviour and the way they monitor their managers truly reflects a long-term time horizon."
Watson Wyatt also asked the audience to vote on their views of a number of belief statements. In general, the majority of respondents agreed that "The ability to short expands a manager’s ability to generate alpha" and "There is more opportunity to add value in long-term investing than short-term investing" (see tables in Notes to the editor below. The feedback from the participants was consistent with their allocation decisions supporting L/S and LTLO.
Said Chan: "Investment is essentially about making judgments and decisions, which are based on underlying investment beliefs about how the investment world works. Investors will provide themselves with a solid foundation to make better quality decisions if they understand the role of beliefs in decision making, take the time to develop better quality beliefs and stick with those beliefs particularly in times of high pressure."
Thursday, 13 December 2007
This is a bit of a plug from Watson Wyatt but it has some interesting bits in it. There seems to be support amongst trustees for the idea that long-term investing is actually better at creating value. Have a look at the stats in the 'notes to editors' bit here.