We should do more to encourage institutional investors to hold stocks for the long term
That Lloyds is encouraging retail investors to be long-term shareholders is great. But it's the institutional investors we really need to convince.
There has been much talk over the years in the UK about how to make shareholders think more long term than they do at the moment.
In his presentation at the MoneyWeek conference a few weeks ago, Terry Smith pointed out that the average fund manager turns over 80% of their portfolio every year, and the average holding time for a share has fallen from seven years in the 1940s to seven months now.
That's a problem: if most of the people in the market are not investors, but speculative traders, how can we expect responsible capitalism (in which long-term shareholders hold the short termism of management to account) to take hold?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
All sorts of suggestions have been put forward to deal with this problem. Some are negative and legislative think the financial transactions tax, which is supposed to put a little grit in the wheels of smooth trading. But some are more positive.
There has, for example, been some support behind the idea of allowing companies to offer stepped dividends depending on investor holding periods so the longer you hold, the higher your annual dividend.
But none of these positive ideas have yet taken off. Why?When I have asked in the past, I have been told that there are regulatory problems with differentiating between shareholders in this way.
Enter TSB. Lloyds Banking Group has just announced that it is to sell 25% of TSB with the offer taking place next month.
But here's the interesting bit: Lloyds is planning to encourage retail investors to hang on to their shares by offering them one free share for every 20 shares they buy and hold for one year (subject to some terms and conditions that will be in the prospectus we haven't yet seen).
It seems like a good idea in essence (and perhaps those regulatory problems don't exist if the differentiation between shareholders is enshrined in the initial public offering (IPO) prospectus).
But, if the offer excludes as it seems to institutional investors, isn't it also a little discriminatory?
Given that it is the big institutions that we want to be long-term holders (they are the ones with the actual power to demand good corporate governance), why put in place a system that only encourages retail investors to stay in (and presumably dilutes the holdings of the institutional investors along the way)?
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
UK GDP: Economy returns to growth in August
The economy grew by 0.2% in August, according to the latest UK GDP figures. Will it influence the Bank of England’s next interest rate decision?
By Katie Williams Published
-
Tipping culture: when to tip and how much is too much?
Travel Tipping culture in one country can be very different from another. If you want to know when to tip, when to skip, and how much to give – we’ve got you covered
By Oojal Dhanjal Published
-
House prices to crash? Your house may still be making you money, but not for much longer
Opinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
By Merryn Somerset Webb Published
-
Prepare your portfolio for recession
Opinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Investing for income? Here are six investment trusts to buy now
Opinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
By Merryn Somerset Webb Published
-
Stories are great – but investors should stick to reality
Opinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
By Merryn Somerset Webb Published
-
Everything is collapsing at once – here’s what to do about it
Opinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
By Merryn Somerset Webb Published
-
Value is starting to emerge in the markets
Opinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
By Merryn Somerset Webb Published
-
ESG investing could end up being a classic mistake
Opinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
UK house prices will fall – but not for a few years
Opinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
By Merryn Somerset Webb Published