• Latest
  • Trending
Spread of Coronavirus

Buy, sell, repeat! No room for ‘hold’ in whipsawing markets

November 12, 2020
Food Shortage Olubadan

Food Shortage: Olubadan Calls On FG, Govs To Adopt Irrigation Farming

January 2, 2021
E Commerce Indonesia

E-commerce platforms tap into Indonesia’s thriving sharia economy

December 29, 2020
Nigeria Economy Money

Nigeria will need to borrow more and that threatens fiscal flexibility

December 28, 2020
Binance Bitcoin

Binance launches bilateral Bitcoin European options

December 28, 2020
LiteForex Logo

Merry Christmas! 25/12/2020

December 25, 2020
Woman in Africa

Africa CDC: New virus variant appears to emerge in Nigeria

December 24, 2020
Bitcoin Africa Crypto

Bitcoin Events’ Blockchain Africa Conference Returns to Johannesburg in March

December 23, 2020
  • About
  • Privacy & Policy
  • Contact
No Result
View All Result
Brokers Index
Friday, February 26, 2021
Brokers Index
No Result
View All Result
Home Market Watch Economy

Buy, sell, repeat! No room for ‘hold’ in whipsawing markets

But buy-and-hold investors have had a rough year so far. Stocks fell 40% and bounced by the same margin in the space of three months. Around the 2008 crisis, moves of such magnitude occurred over three years.

November 12, 2020
in Economy, Market Watch
Reading Time: 4min read
0
Spread of Coronavirus

Spread of Coronavirus

LONDON (Reuters) – Warren Buffett’s favourite holding period — forever — has few fans these days, with the average length of time shares spend in a portfolio hitting record lows this year as investors surf wild market swings for quick gains.

The length of time that investors hold shares has been shrinking for decades but the trend accelerated this year in volatile markets that have made people nervous about sitting on investments for too long.

There are different ways of slicing it, but Reuters calculations based on New York stock exchange data show the average holding period for U.S. shares was 5-1/2 months in June, versus 8-1/2 months at end-2019.

ADVERTISEMENT

The previous record low of six months was hit just after the 2008 crisis. In 1999, for example, 14 months was the average.

Europe displays a similar trend, with holding periods shrinking to less than 5 months, from 7 months last December.

(GRAPHIC – Shrinking holding period of U.S. stocks:)

Shrinking Times
Shrinking Times

Rob Almeida, a portfolio manager at asset manager MFS, said for years mom-and-pop punters, commission-free investing and more machine-trading have contributed to the trend.

But 0% interest rates, trillions of dollars of central bank and government stimulus and high levels of uncertainty caused by the pandemic have added to the momentum.

“Capital doesn’t have a price thanks to all this stimulus,” Almeida said, “The COVID-19 crisis has accelerated the trend of short-termism in investing.”

Meanwhile there’s little clarity on companies’ future earnings, the economic outlook and the pandemic outcome.

“So what’s happening is this ability to act or trade or churn, whatever you want to call it, based on information that may not be material,” Almeida said.

Turnover ratios, the percentage of portfolio holdings that are replaced in a 12-month period, increased to 92% at end-June, from 85% a year ago for a group of global multi-asset funds tracked by Lipper.

The trend has ensured rich returns for nimble traders but also poses questions about market stability once stimulus fades.

(GRAPHIC – Bond returns:)

Return
Return

‘BACK TO FRONT’

Market short-termism was highlighted as far back as 2010 by Bank of England chief economist Andrew Haldane who described it as “subconscious myopia.”

But buy-and-hold investors have had a rough year so far. Stocks fell 40% and bounced by the same margin in the space of three months. Around the 2008 crisis, moves of such magnitude occurred over three years.

Kevin Russell, CIO of UBS’ O’Connor hedge fund, with $6.1 billion in assets under management, said his lowest turnover strategies, unable to quickly adjust hedges and exposures, are now his worst performing.

Low-turnover strategies struggle in this environment as they are not as durable against the swift rotations happening across sectors and style factors, he said, referring to different investment styles.

And when short-term returns are so attractive, it makes little sense to hold assets for longer. Returns on 10-year Treasuries in the first 2020 quarter almost matched what would mathematically accrue after a decade, BCA Research strategist Dhaval Joshi noted.

“The same principle also applies to mainstream stock markets which are priced for feeble long-term returns – yet can rally by 20-30% in the space of a few weeks,” Joshi said.

“The incentive structure is back to front.”

On bonds too, whether high-grade government securities or “junk” debt, average daily turnover is running 10-20% above historical averages, trading platform Marketaxess said.

Asset manager BlueBay generally churns bond positions twice a year. But that horizon shrank in March-April to 2-3 months as volatility constantly threw up buying opportunities, said portfolio manager Kaspar Hense.

The issue has implications for spending on investment research, which is often used to set out strategies for longer-term investing, as well as for long-term pension and insurance investors. And BCA’s Joshi said short-term players buying and selling at the same time can extinguish market liquidity, increasing volatility.

In terms of real-world impact, it is a poor incentive for long-term corporate planning, Fabio Di Giansante, Amundi’s head of large cap equities, said.

“Because what ultimately drives share price performance is earnings and you need to hold on to good investments for a while to see (companies) execute their business decisions,” he said.

(GRAPHIC – US stock valuations and Fed Balance sheet:)

US stock valuations and Fed Balance sheet
US stock valuations and Fed Balance sheet
Tags: CapitalEconomyLipperMarket WatchPrice PerformanceWarren BuffettWhipsawing Markets
Share1Tweet1ShareSendShare
ADVERTISEMENT

Insights

Bitcoin Africa Crypto

Bitcoin Events’ Blockchain Africa Conference Returns to Johannesburg in March

December 23, 2020
India Economy

The Indian economy is bouncing back | Opinion

December 8, 2020
Professional Trader

16 Technical Analysis Secrets for Boosting Your Trading Skills

November 29, 2020
Trader Lifestyle Tips

A Day in the Life of a Professional Forex Trader

November 27, 2020
Trading Account Protection

5 Tips to Protect Your Brokerage Login Credentials from Hackers

November 15, 2020
Brokers Index

Copyright © 2020 brokersindex.com

Navigate Site

  • About
  • Privacy & Policy
  • Contact

Follow Us

No Result
View All Result
  • Brokers News
  • Market Watch
    • Commodities
    • Cryptocurrency
    • Economy
    • Forex
    • Politics
    • Science
    • Stock Markets
    • Technology
    • World
  • Insights
    • Investing Adviser
    • Lifestyle
    • Trading Tips
  • Focus
    • Case Study
    • Editors Picks
    • Famous Failures
    • Success Stories

Copyright © 2020 brokersindex.com

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.