The IMA suggested "a distinction should be drawn between those who mainly trade shares (for example, banks and other proprietary traders) and those, like asset managers that invest".
It added that those with high portfolio turnover such as ‘high frequency traders’ tend to be driven by short-term market trends and turn their portfolios over rapidly, and will not tend to analyse underlying performance.
Meanwhile, "those that invest also buy and sell equities but tend to hold them for the long-term based on their analysis of a company’s prospects and underlying performance".
The Kay Review said it thought this identification "helpful and important" but added it did not agree with the implication that all asset managers are ‘investors’.
"Many asset managers are investors in this sense, but not all are, and the styles of some reflect a mix of trading and investment. Nor do we agree that the distinction between a trader and investor can be equated to the distinction between those who use their own capital and those who manage funds on behalf of others."
The interim report said while investors tend to hold shares for much longer than traders, it is not as simple as that because all investors consider the timing of their purchases and sales in the light of market conditions.
In addressing the issue of the steady decline of the average holding period for shares, the report admitted it may not have the significance commonly attached to it.
To this end it said there could be more helpful measures of "short-termism" in investing such as the proportion of shares held by the current holder for a specified length of time.
Questions it felt should be answered were:
- What share of the economic interest in a company is held by investors who have maintained that economic interest for at least two years?
- What share of the voting rights in the company is held by individuals and institutions which have held these voting rights for at least two years?
- What proportion of the shares is held at the discretion of asset managers whose significant commitment to the company goes back more than two years?
But it said at present data does not exist that would enable answers to these questions, and so the Kay Review would welcome comments and suggestions for data collection that could shed some better understanding of the UK equity market.
Do you think the IMA or the Kay Review has a better understanding of investors/traders and current trends in the UK market place? Are asset managers traders or investors? Let us know below…
