How to Separate Long-Term vs. Short-Term Parts of a Strategy

WTW’s Thinking Ahead Institute has a computer code that aims to do just that.



Just how can investors separate long-term from short-term segments of a strategy? Consulting firm WTW’s Thinking Ahead Institute has come up with an open-source computer code aiming at enabling allocators to do just that.  

Investors have “become accustomed to short-term performance measures, which are perpetuated by traditional reporting methods,” said Tim Hodgson, co-head of the institute, in a report delineating the new method. The unfortunate result of their mindset is that “many investment mandates [are] being terminated for the wrong reasons and at the wrong time.” 

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The organization’s code breaks down a portfolio’s returns into three components: changes in market sentiment, growth in portfolio fundamentals and changes in the portfolio’s holdings. “This allows the evaluation of an investor’s decisions to be based not only on market-value returns, but also on changes in the fundamental attributes of the portfolio over time,” Hodgson explained.

The upshot, he continued, will be “improved conversations between asset managers and asset owners about the long-term return drivers of an investment strategy, particularly during periods of underperformance.”

The report notes that this initiative will be tested by members of the institute who are institutional investors: WTW, Baillie Gifford, MFS and S&P Dow Jones Indices.

The framework should work with all asset classes, although it may end up better at some than others, the report says. At the moment, it has been applied to portfolios that emphasize fundamentals, to better understand when there has been “a divergence in fundamentals and stock price performance.”

The report indicates that the method could well be employed in assessing environmental, social and governance investments.

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Philadelphia Union Pension Sues Amazon for Allegedly Lying About COVID Expansion

Lawsuit claims retail giant’s infrastructure investment was a ‘massive, self-imposed, undue drain’ on its finances.



The Asbestos Workers Philadelphia Welfare and Pension Fund has filed a lawsuit against Amazon.com, alleging that the retail giant made false and misleading statements about the expansion of its e-commerce infrastructure during the COVID-19 pandemic.

 

According to the complaint, which was filed in the U.S. District Court for the Western District of Washington, before the outbreak of the pandemic, Amazon invested “significant capital” to aggressively expand its infrastructure and fulfillment networks. This was a key priority for the company, which was looking to increase its ability to provide its e-commerce customers with shortened delivery times, including same-day delivery.

 

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When the pandemic hit in early 2020 and consumer demand for Amazon’s products skyrocketed, Amazon continued expanding its infrastructure and fulfillment network capacity to meet demand, the lawsuit says. It notes that between the end of 2019 and the end of 2021, Amazon more than doubled its warehouse, distribution and data center space, to 387.1 million square feet from 192 million square feet.

 

According to the lawsuit, Amazon “repeatedly and consistently told investors that the company’s investments in expanding infrastructure and fulfillment network capacity were sound and appropriate decisions for the long term.” However, the suit alleges these statements were false. “In reality,” says the lawsuit, “the defendants knew or recklessly disregarded that the company’s infrastructure and fulfillment network investments substantially outpaced demand, and that those investments were a massive, self-imposed, undue drain on Amazon’s financial condition.”

 

The lawsuit also alleges that, contrary to Amazon’s public statements, by July 2021 the company had already implemented cutbacks to its fulfillment capacity without disclosing it to investors. The alleged “misrepresentations and omissions” caused Amazon’s common stock to trade at artificially inflated prices, the suit alleges. It claims the “truth emerged” on April 28 of this year when Amazon reported its first net quarterly loss since 2015.

 

“After months of falsely representing that Amazon’s expansion of its e-commerce fulfillment network and infrastructure was necessary and appropriate to meet both short-term and long-term customer demand, defendants disclosed that day that Amazon was ‘no longer chasing physical or staffing capacity,’” says the complaint. The lawsuit says that Amazon reported $6 billion of incremental costs, including $2 billion due to overcapacity in its fulfillment and transportation network. It says that when this news was released, Amazon’s stock price tumbled more than 14%.

 

The plaintiffs did not say in the complaint how much they are seeking in restitution. Amazon declined to comment on the lawsuit.

 

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