Turnover for nearly two-thirds of active long-only institutional equity managers exceeded their stated targets, according to a report conducted by Mercer and funded by the Investor Responsibility Research Center Institute.
In an interview, Jon Lukomnik, the institute's program director, said that pervasively high level of turnover points to a “systemic problem” for an industry focused on long-term trends.
The study of managers from June 2006 through June 2009 showed 550 of the 822 strategies whose managers provided expected turnover figures had actual turnover that exceeded those targets by an average of 26%. For the entire sample of 991 strategies, average annual turnover was 72%.
A fifth of the strategies had turnover of more than 100% annually.
The historic volatility seen during 2008 and 2009 shouldn't undermine the study's conclusion that “short term-ism” is a problem meriting attention, as turnover during the second half of the period wasn't appreciably higher than during the first half, before the worst of the convulsions in financial markets, said Mr. Lukomnik.
The study's scope didn't extend to mining data to show how the relative performance of higher turnover strategies compared with that of lower turnover strategies.
(To read the full report, click here.)