What price are Australian investors paying for short-termism?
Do Australians take too short-term a view of investments? Is there a tendency for knee-jerk reactions and little consideration for the long-term? A Money Management roundtable decided to find out.
Mike Taylor, managing editor, Money Management: Do we take too short-term a view of investment anyway in Australia? Is there a knee-jerk reaction to just about anything about investment, with no-one looking at superannuation or anything else as the long-term investment it is supposedly meant to be? I’ll go to Claire; are we too focused on the short-term?
Claire Mackay, financial planner, Quantum Financial: When I’m sitting down with my clients, the noise and the media and the things they’re reading are very much the short-term. But their goals are, “Will I be able to afford my retirement when I’m 85, when I’m 90”, and that’s a long way away for a lot of them.
So we’re constantly re-analysing the strategies today: what’s the likelihood of being able to still fund the lifestyle that you desire with rising health costs, with all the other costs we know are going to go up?
We’re constantly looking at that longer-term play, and it’s not just their super; it’s their whole investment world and strategy.
The concern is that they’re constantly being bombarded with nightly news and daily updates because the market is priced every day, and it is difficult to withstand the volume of noise being created.
The big concern is about the short-term the volatility, the continued uncertainty. And that is where we’re sitting down with our clients, and in these uncertain times sitting down with them more often too, and taking them through the strategies for their situation and continuing to assess their particular circumstance.
Because at the end of the day the clients want to know the market in general and the world in general, but ultimately it’s their money and they want to know more about their situation.
So that is something where in difficult times planners actually earn their keep, because that’s when we’re working intensely with our clients around the short-term implications of this information in their circumstances – but also the longer-term play for them.
Mike Taylor, Money Management: Veronica, you’re in a happy situation too of actually being able to stand back and watch. Is there too much short-termism?
Veronica Klaus, senior investment consultant, Lonsec: Yeah, I think there is and I think that unfortunately there is this huge disparity between what the end client is really focused on and what we as an industry are.
You walk into whether it’s an investment committee meeting, or a trustee meeting, and the first thing that they do is pull out a performance table: how did I go last month, how did I go last quarter, where am I standing and why am I not equal with whoever and whoever the competitor is?
There absolutely is too much emphasis on it. I think we generally forget why we’ve got our strategies and fund managers within the portfolio, what they’re meant to do.
The big thing that we’re not focusing on, or not focusing as much on, is the risk side of things. Because at the end of the day for the end client that invests, especially retirees, their major objective is not to lose money.
Yet we never seem to really talk about absolute return, absolute risk and volatility in that context. It’s always, especially up until recently, been about tracking our own performance.
Dominic McCormick, chief investment officer, Select Asset Management: But that focus on risk is one factor that drives this short-term focus, because theoretically it may make sense for a long-term investor to be fully invested in equities and just buy-and-hold and leave it for 20 or 30 years.
The reality is 95 per cent of clients can’t handle that and 50 per cent drawdown. That approach almost certainly will entail, at some point, that they’ll give up on it at the worst possible time.
So I think that actually forces the industry to think about building portfolios that don’t have that sort of drawdown, which makes sense. And to do that I think you do have to take a shorter-term view.
The other element is with the central bank experiments that are going on in the world at the moment, the deleveraging that’s happening, the macro economic risks that are forcing sensible investors to take a shorter-term view, and rationally do so. Because I don’t think we are currently in this environment where we’re in a multi-year bull market supported by valuations and strongly improving fundamentals.
So I think investors do need to take a shorter-term view: not a very short-term view but to be dynamically managing some of those risks that are out there.
Tim Samway, managing director, Hyperion Asset Management: I think we’re in a pandemic of short-termism that runs from the clients right through to the companies that we invest in.
The managing director of a corporation that doesn’t get results within two years is arguably ready to be sacked, which is outrageous. And that’s the pressure that the funds management industry has placed on corporations.
You mentioned earlier that trustees look at monthly schedules of performance, imagining that there’s a thing called peer risk when in fact the level of inertia of superannuants is incredible. You almost have to shoot them to get rid of them, they stay stuck in the investment funds they’re in.
Fund managers also, the amount of turnover on the Australian market is ridiculous given the long-term objectives that fund managers should be looking for. So no wonder the clients have a hard time: the whole industry is set up around short-termism.
Jonas Palmqvist senior portfolio manager, AMP Capital: I joined the industry 17 years ago and in that time it feels like half the industry has turned into an entertainment industry with CNBC, Bloomberg TV – and that’s just purely in that short-term. If you look at long-term charts of volume, turnover etcetera, we’ve all been pushed into that corner.
But there’s a great opportunity there. If you set up the right fund focusing on the fundamentals and looking through it and keeping your focus on three-to-five years, you can actually use that short-term pressure to your advantage. You can get good entry prices when things are just too cheap, and good exit prices when people are too hysterical on the other side. So there’s an opportunity in there.
The issue is that you have to have your interests aligned with your investors, and you have to communicate to your investors what you’re doing – that you’re not aiming for the monthly three-basis-point high performers, you’re aiming for something much better.
But the industry pressure is there every day to perform in the short-term, unfortunately, and it’s basically costing everyone money.
Mike Taylor, Money Management: Okay, well on that note where we can blame the media, we’ll call it quits. Thank you very much ladies and gentlemen; it was quite worthwhile, thank you.
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