Turnover increases in buy side portfolios.

The market participants who believe that “buy and hold” is dead are usually not traditional long, asset managers. Within the buy side community, hedge funds may be the first to endorse non-traditional strategies, such as Steve Shafer, chief investment officer and portfolio manager at Covenant Financial Services, a multi-strategy, global macro hedge fund with 250 million under management, based out of Oklahoma City.

“Markets tend to be dominated by investors that say they’re long term, meaning their point of view is five to ten years,” Shafer said. “Investors that say it’s best to stay put in times of volatility, but real markets don’t play this out.”

He cited research that in 1990, the average holding period of a common stock was two years; today it’s less than nine months.  Such a sharp increase in turnover signals a rooted changed in the marketplace today, according to Shafer.

The new age of market volatility present positive changes, for Shafer, who launched Covenant funds at the onset of the financial global financial crisis in June 2008.

“Some clients and team members at Covenant refer to June 2008 as shock therapy, while others say it was like being thrown to the sharks. I personally combined these views and come to view June 2008 as shark therapy.”
Changing market structure, which has introduced commonly-perceived predatory players to the buy side trading and investing landscape may have indeed become “sharks” to some.

Such players are here to stay—Shafer cites high frequency traders, instigators of the flash crash and other new market phenomenon such as the “prevalence of ETFs, rising correlations, and financial regulation.”

The increasingly fast nature of market change conflicts with the same, age-old regulatory processes deployed to tolerate and enhance change.

“Markets should be preemptive, but they’re reactive…especially when talking about the slow motion of governmental response,” said Shafer.

Another common myth is that the buy side investor pool is dominated by institutions. “The majority of money is said to be institutional, or ‘real’, in scope,” Shafer noted, whose firm largely taps into the growing wealth of family offices and high net worth investors.

Today, family offices wield $1.2 trillion in total assets under management, according to The Family Wealth Alliance. Subsequently, there is 32 billion in private wealth, according to consultancy Capgemini.