Strategy & Corporate Finance Practice

The investors that

matter still want you to
focus on the long term
Our latest survey of chief investment officers of long-horizon equity
funds shows (again) that they seek to invest in companies that prioritize
long-term business fundamentals over short-term targets.
by Jay Gelb, Rob McCarthy, Werner Rehm, and Andrey Voronin

April 2023
 To say that shareholders care most about today’s
stock price movements has become a truism.
And perhaps some truly do feel this way. It’s hard to
emerge from a quarterly earnings call without
the impression that at least analysts care a great
deal about meeting upcoming targets.
Long-term institutional investors (also known as
intrinsic investors), however, care more about
the long-term drivers of value creation. Our research
has shown that these investors have an outsize
influence on a company’s stock price over time. The
results of our latest survey of chief investment
officers of leading global funds that make
large, selective investments in equities reflect
these points.1
The respondents make clear that their funds
prioritize sustainable value creation over “short
termism” and favor CEOs who move quickly
and boldly to reallocate a company’s capital to
enable value-creating growth. Asked to rank
the three most important drivers of long-term value
creation, respondents bear down on the basics:
cost optimization, capital productivity, and product
innovation (Exhibit 1).

Exhibit 1

Surveyed investors prioritize traditional drivers of long-term value creation.

Top drivers of long-term shareholder value creation, % of respondents (n = 19)1

59 58
47
31

Cost Capital Product M&A and

optimization productivity innovation partnerships

31 29 25
20

Supply chain Increased R&D Expansion into Environmental, social,

efficiency and investment new markets and governance
resilience impact

1
Instruction: please indicate the 3 most important drivers of long-term shareholder value creation across industries in the current market environment.
Source: McKinsey Investor Survey, 19 chief investment officers of leading investment funds, September 7–October 11, 2022

McKinsey & Company

1
The survey was in the field from September 7 to October 11, 2022, and garnered responses from 19 chief investment officers of leading
investment funds around the world.

2 The investors that matter still want you to focus on the long term
Although there were some variations across
industries, chief investment officers overwhelmingly
ranked those three drivers the highest (Exhibit 2).
Investors also clearly identify sustainable competitive
advantage, followed by return on capital criteria
(earnings and capital allocation) and management
record, as key factors in deciding whether to buy or
hold a financially healthy company (Exhibit 3).
Perhaps surprisingly, the respondents don’t rate
outperforming peers on growth as quite so
essential—presumably, that would change for
underperforming those peers. Nor were broader
industry trends necessarily determinative.
These experienced investors understand that
growth can be finicky, while fundamentals
such as solid operations, a focus on competitive
advantage, and effective management create
value over the longer term.

Exhibit 2

Surveyed investors tend to prioritize similar core principles, although there is

some variation by industry.

Top drivers of long-term shareholder value creation, by industry, % of respondents (n = 19)1

Cost Product Supply chain efficiency Expansion into
optimization innovation and resilience new markets

Capital M&A and Increased R&D ESG²

productivity partnerships investment impact

Materials 78 89 33 33

Industrial 55 55 55

Finance and 67 75 42 42
insurance

Consumer 55 45 64 45

Tech, media,
and telecom 51 43 86 43

Energy 75 75 50

Travel, logistics, 63 63 63
and infrastructure

Pharma and
56 63 56
medical products

¹Instruction: please indicate the 3 most important drivers of long-term shareholder value creation across industries in the current market environment.
²Environmental, social, and governance.
Source: McKinsey Investor Survey, 19 chief investment officers of leading investment funds, September 7–October 11, 2022

McKinsey & Company

The investors that matter still want you to focus on the long term 3
 Exhibit 3

The criteria for buying and holding decisions are largely oriented to
the long term.

Top criteria for buying or holding stock of financially healthy company in current market environment,
% of respondents (n = 19)1
Company Industry Other

Sustainable advantage over key competitors 53

Projected profit margin exceeding that of peers 47
Efficient capital allocation program 42
Management team’s record of delivering results 42
Competitive landscape 21
Projected market growth rate 16
ESG²: industry-leading standards and future commitments 16
Macroeconomic outlook in key markets 16
Current market size 11
Political and regulatory risk 11
Other 11
Projected average industry profit margins 5
Projected revenue growth rate exceeding that of peers 5

Credible operating strategy 5

¹Question: What are the 3 most important criteria for buying or holding the stock of a financially healthy company in the current market environment?
²Environmental, social, and governance.
Source: McKinsey Investor Survey, 19 chief investment officers of leading investment funds, September 7–October 11, 2022

McKinsey & Company

Exhibit 4

Surveyed investors favor CEOs who think holistically and move quickly.
Behaviors that CEOs should take to sustain long-term value creation, % of respondents (n = 19)1

84
53 53 47 42
21

Dynamically Invest sufficient Rigorously focus Generate value not Resist temptation Focus more on
reallocate capital capital and talent on creating only for to take actions investing in
and talent (via in bold initiatives portfolio of shareholders but that boost energy transition,
divestiture, if more quickly initiatives with explicitly for short-term profits even if NPVs
to achieve positive net employees, currently seem
needed) more
successful present values customers, and negative
quickly to areas position (NPVs) other stakeholders
with most value
creation

1
Question: What top 3 behaviors should CEOs take to sustain long-term value creation?
Source: McKinsey Investor Survey, 19 chief investment officers of leading investment funds, September 7–October 11, 2022

McKinsey & Company

4 The investors that matter still want you to focus on the long term
 The other side of the coin is that respondents want
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CEOs to focus much less on short-term earnings
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and much more on resource reallocation. That starts
with faster overall restructuring—selling the
assets that don’t align with the way that a company
will create value over the long term (Exhibit 4).
More than 50 percent of chief investment officers
surveyed also want management teams to
think explicitly about the impact their strategy has
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on other stakeholders, such as employees and
customers. This concern is entirely consistent with
understanding what makes for a strong brand and a
sustainable competitive advantage. Indeed, it’s
telling that chief investment officers identified the
very behaviors that mark a short-term approach
as CEOs’ biggest mistakes.
All told, the survey results reinforce what intrinsic
investors have been making clear for years:
companies should not prioritize short-term
financial performance at the expense of long-term
value creation.

Jay Gelb is a partner in McKinsey’s New York office, Rob McCarthy is a senior knowledge expert in the Boston office, Werner
Rehm is a partner in the New Jersey office, and Andrey Voronin is a consultant in the Almaty office.

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The investors that matter still want you to focus on the long term 5