Do Asset Manager Biases Cannibalize Existing, Still Viable Holdings?

We’re able to better understand the scale of the problem associated with neglect of selling discipline among institutional asset managers thanks to a study released earlier this year, “Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors.”

The research by Klakow Akepanidtaworn, Rick Di Mascio, Alex Imas, and Lawrence Schmidt took the selling problem out of the anecdotal realm by asking targeted questions of a robust data set. Hundreds of both highly concentrated and internationally diversified portfolios were analyzed. The portfolios were almost always:

• Tax-exempt
• Held limited cash
• Prohibited using leverage or taking short positions

Next, external data on past and future returns was merged in to test asset performance before, during, and after the institutional managers’ purchases and sales.

The following illustrates the richness of the study’s data.

Total portfolios analyzed: 783

Average portfolio size: $573 million

Average portfolio holdings: 78, with a standard deviation of 68

Average holding length: At least 485 calendar says (about 15 months)

Data sets analyzed: Daily holdings, trades, and portfolio returns

Time period: Between 2000 and March 2016 (51,000 portfolio-months of data)

Total trading dates: 89 million+

Total trades: 4.4 million (2.0 million sells and 2.4 mil-lion buys)

Average performance vs. respective benchmark: 0.22% per month, or 2.6% per year