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Exploring Links Among Long-Termism, Activist Behavior, And Shareholder Return

The notion of long-termism, or the premise that corporate governance should always prioritize the long-term best interests of shareholders, is frequently perceived to be at odds with the objectives of activist investment funds. This is because the behavior and priorities of the activists are often seen to be aimed at short-term gains and opposed to the behavior exhibited by existing executive management.

Key highlights:

  • Enhanced Return On Invested Capital (ROIC) is a key driver of shareholder value.
  • Stocks displaying the highest combined degree of improvement in ROIC and activist share ownership significantly outperform the broad market.
  • Activist investing is increasingly becoming a style of management decision-making, essentially a behavior, as opposed to the traditional archetypical investor class.
  • It is not appropriate to paint all activist investors with a single brush.
  • Despite activists’ tendencies to draw attention to themselves and make headlines in the large-cap portion of the stock market, a preponderance of activists prefer to operate in the mid-cap category of the market.
  • As an investor class, activist investors appear to be actively managing portfolio risk as much as they are reputed to be addressing long-term corporate operational issues.