Long-term-oriented investors deliver superior performance and long-term-oriented companies outperform in terms of revenue, earnings, and job creation. But despite overwhelming evidence, short-term pressures are mounting. FCLTCompass is an annual benchmarking tool tracking long-term investment behavior on a global scale, and the results of our 2022 analysis suggest a theme of convergence. Investment horizons for all three segments of the investment value chain – savers, investors, and companies – shortened in 2021, the first year in our dataset for which this was the case. These rapid shifts in time horizons will shape capital markets in the years to come.

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While the overall gaps decreased between the three segments last year, such a trend could be a signal of increased short-term pressures. For example, high household consumption (especially in the United States) drove saver horizons down to their lowest point in our study period. Companies, for their part, held onto more cash and retained earnings and did not allocate more to R&D and capital expenditures, instead choosing to buy back stock – shortening time horizons as a result.

Investment horizons receded in 2021 due to global disruptions such as inflation and COVID-19 recovery efforts. The gap in investment horizons between savers and asset classes shrank by 14% (1 year 9 months). This suggests that markets, and each group in the market, became more short-term in a trend that may indicate a growing sense of caution post-pandemic:

Investors increased allocations to illiquid assets to increase return, leading to comparatively longer time horizons. Due to a high correlation between equities and fixed income, institutional investors looked to generate returns in other ways – mostly in real assets and private equity. Even in the face of increasing corporate and saver short-termism, equity investors recovered, while fixed income became shorter-term, resulting in the 2% decrease overall. Institutional investors are increasingly allocating to real assets (e.g. private equity, venture capital, real estate, infrastructure). While the former trend looks likely to reverse given the markets in 2022, the latter is a trend that will likely persist.

Post-pandemic, companies are faced with the dilemma of saving for resilience or maintaining balance sheet efficiency. Many companies made shorter-term decisions such as:

Preliminary 2022 data reflects continued geopolitical instability. It is too early to determine the impact geopolitical events could have on investment time horizons, but periods of significant stress and volatility often foreshadow cautious investment behaviors and shortening time horizons.

To learn more about this project and view all the data of our recent update, visit our interactive dashboard via the link below.

FCLTCompass - Measuring Investment Horizons Across Global Capital Markets

5 December 2023

FCLTCompass - Measuring Investment Horizons Across Global Capital Markets

FCLTCompass is FCLTGlobal’s dashboard that tracks the investment horizons of global savers, asset classes, and companies on an annual basis. We produce a yearly report that uses this data to reveal important insights and trends regarding the state of worldwide capital markets. The 2022 edition of the project includes data covering calendar year 2021.

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