The impact of activist mindset on long-termism
Data provider S&P Global Market Intelligence has released a research exploring links between activist investing and corporate management decision-making to identify specific catalysts to long-term stock price growth.
The report has tracked the performance of the S&P 1500 equity index between 2004 and 2015 and analysed a number of trends such as total return on invested capital (ROIC), activist ownership, stock buyback and capital markets activity, and overall stock market returns over 1- and 5-year time horizons.
The research has found out that aggregate activist holdings have amounted to $133.5 bn (€116.9bn) at year-end 2015 from $58.5bn (€51.2bn) in 2004, up 128% over the period.
It highlights the number of activist investors has risen by 65% to 280 at year-end 2015 from 170 in 2004.
Other findings of the study show that the activist mindset drives short- and long-term stock outperformance.
The report points out annual rates of ROIC are positively correlated with above-market rates of return, suggesting that the companies that with the best performance in allocating their capital to profitable investments also achieve superior stock performance over 1- and 5-year time horizons.
“Activist investors, on average, tend to hold significant equity positions (a minimum 5% of shares outstanding or 10% of the activist’s total portfolio) for a relatively short period of time,” the research notably outlines.
Read the report : Long-Termism_Governance_Activists_Final