Investors are using a short-term lens to drive decision-making and adjusting asset allocations without taking the whole portfolio into account, according to a recent Pensions & Investments and Summit Strategies Group survey.
“There really was a short-term focus among (survey) participants. They didn't even want to focus beyond two years,” said Chris Fox, senior vice president at Clayton, Mo.-based Summit Strategies. “My guess as to why people do that is, one, forecasting is hard. But two, the way people are measuring portfolios is in that two-year window, so that's where the focus tends to be.”
The 31-question survey — conducted from April 22 to May 10 — specifically polled respondents on correlation, volatility, deflation, inflation, interest rates and growth.
“What we're trying to do is gauge investors' thinking about the big market drivers,” said Mr. Fox. “It's kind of a contingency-planning tool, because it makes investors critically sit down and think where their portfolio is relative to these factors. If they believe these factors are going to change, how are they going to react?”
The survey found a majority of the 196 respondents use a focus of two years or less to drive decision-making and also tend to slightly prioritize return over risk. (The respondents were executives at endowments, foundations, pension plans, money managers and consulting firms.)
When asked to comment on the two-year focus of survey respondents, James Paulsen, chief investment strategist at Wells Capital Management, Minneapolis, said: “That (two-year) horizon has actually lengthened some” from what he observed two years ago. That “is probably a good development, but I think it's still way too short for most people,” Mr. Paulsen said.
“I think that's because of the legacy of the "08 crisis, but they should keep their eyes on what will happen in the next three to five years.”
It also appears a majority of respondents are making investment allocation decisions in “a virtual vacuum,” according to Mr. Fox. Based on the survey results, he said, their decision-making processes on how to adjust asset allocations based on changes in various market drivers do not always carry over into how that decision would affect other asset classes.
“You certainly can't be an absolutist in isolation, because if you go overweight on something, you have to make a decision where to take it from,” Mr. Paulsen said. “When you make a move in one place, it affects it in another. What you sell is just as important as what you buy.”
The apparent lack of a comprehensive and holistic framework to drive decision-making also led several participants to provide contradictory responses.