Empirical evidence shows that equities have been a consistent source of long-term returns, outperforming other asset classes over multiple decades. In addition, that longer equity holding periods may help reduce risk and improve performance.
Yet despite this, the average equity holding period has decreased significantly over time. Today’s challenging economic conditions, where stretched valuations leave investors vulnerable, with little to no room for error, have reinforced our commitment to global equities as a core component of an investment portfolio.
An allocation to global equities provides geographic and sectoral diversification opportunities along with the ability to earn higher returns in the long-run, therefore potentially allowing investors to benefit from the equity risk premium.
The case for long-term investing
Over the past several decades, the average holding period for equities has declined markedly, from seven years to 10 months. This owes largely to technological advancements, such as the automation of exchanges, which has brought down transaction costs and increased the volume of trades that can be processed, leading to the growth of high frequency trading (HFT) from the early 2000s. HFT, which uses algorithms to trade stocks at ultra-fast speed, now accounts for around 50% of total stock trading volume in the US and 40% in Europe, and has thereby played a significant role in reducing the average stock holding period.
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Supporting documents
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