The Equities Debate

05 Jan 2016

How have different investment styles impacted corporate behaviour and equity performance? What influence do asset managers and investors really have?  

These are just some of the questions we posed to our experienced equities panel, covering views from our active, passive, systematic and SRI/ESG teams.

HOW HAVE DIFFERENT INVESTMENT STYLES IMPACTED CORPORATE BEHAVIOUR AND EQUITY PERFORMANCE?

Over the last half century, stock markets have undergone a transformation. Back in the 1950s in the US, more than 90% of stocks were owned by private investors. Today, by contrast, institutional investors collectively account for more than 70% of the market. This evolving ownership structure has resulted in many changes, but perhaps the single most noteworthy impact is a sharp improvement in CFROIs (Cash Flow Return on Investment) that we have seen from corporates which have moved from a low of around 4% in the late 1970s to over 10% just prior to the Financial Crisis in 2008. This improvement in profitability led to excellent stock market returns with the S&P compounding at 12.7% (including dividends) over the 1982 – 2007 period.

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