While the benefits of portfolio diversification are generally accepted, opinion on whether a correlation can be found between portfolio concentration and performance remains divided. But, for investor relations professionals and executives alike, an understanding of time horizons and their company’s place in an investor’s portfolio are important in evaluating the level of engagement to expect.
The portfolios of the investors surveyed ranged in size from 20 to hundreds of stocks. Some 16% of those participating in the survey represented the sell-side and here, as would be expected, there was less divergence in the number of stocks covered.
To identify and assess trends in global portfolio management, we have looked at four key elements:
√ Regional patterns of portfolio structure
√ Trends in trading behaviour post the financial crisis
√ Expectations of trends in portfolio structure over the next three years
√ Investment performance vs local benchmarks
On average, our investor sample each managed a portfolio of slightly over 100 stocks. Portfolios in the U.S. were, on average, about this size, with the greatest differential between Europe (where the average was around 140) and Asia (around 50). Across the board, the sell-side respondents on average currently covered around 56 individual companies.
Trading and Portfolio Structure
To give an indication of how actively or aggressively investors manage their portfolios, we sought to identify the number of individual stocks in each portfolio that had been held for one year, since 2013, and for a five-year period, since the financial crisis.
In total, some 60% of individual stocks have remained in an investor’s portfolio for the past year – in other words, an average of 60 of the 100 stocks in a sample portfolio. To look at this from the other side, 40 of the 100 shares now being held will not have been among the fund’s investments a year ago.
There is an even more striking finding from a portfolio five years ago. On average only one-third of the stocks held in 2009 are still held today.
1. Interestingly, portfolio size does not appear to be closely connected with portfolio turnover. The 60% figure is broadly consistent from the most concentrated to the most diverse portfolio.
2. U.S. portfolio managers surveyed appear to be more content with the structure of their portfolios over the past twelve months than their counterparts in Europe and particularly Asia. While, 63% of U.S. investors have more than three-quarters of the same stocks today that they had in 2013, slightly less than a third of European investors and one in ten of those in Asia say that they have continued to hold 75% of their portfolios.
3. All regions have seen far greater portfolio churn over the five-year period. For the average U.S. portfolio, some 39% of stocks remain, and in Europe it is roughly the same percentage at 36%. Asia offers a different perspective entirely, perhaps reflecting its relative newness as an investment centre, with very few stocks having been held five years ago (17% on average).
4. Investors surveyed tend to benchmark their performance against different indices, i.e., S&P in the U.S., MSCI and Dow Jones in Europe, Hang Seng and other local benchmarks in Asia. Interestingly, given the relative stability in their portfolios, more U.S. investors acknowledged they had not beaten their own benchmark during 2013 than did any of the other regions. Having said that, respondents in the other two regions were twice as likely to say that they “didn’t know” how their portfolio had performed or just chose not to provide a response.
Looking forward to the next three years, we can expect to see an increase in the average number of stocks owned by institutional investors. Around half say that they expect their portfolio to have a similar construction in terms of the number of equities held, however, more than one in three expect to have more companies represented in their portfolio, a percentage that is broadly consistent across all portfolio sizes.
Glenn is a 25+ year MSLGROUP veteran. An experienced client counselor, he has advised leading politicians, as well as CEOs and other leaders in some of the world’s largest companies, on critical issues related to communication, branding and marketing. A multiple award-winner himself, Glenn is regularly asked to judge world leading recognition programs. Follow him on twitter: @gosaki