The detail in retail
James Collins at Tavistock discusses why communicating with all of your investment audiences is key, in particular, the role of retail investors for UK PLCs.
Finding a balance
There is a balance to be found when trying to attract investors. Ideally, a company’s share register will have a blend of institutions, private client brokers and ‘retail investors’ (individuals buying and selling shares on the open market) – all play an important role in ensuring a fair valuation. If a company’s register – particularly those in the small to mid-cap market and those listed on AIM - is held heavily by institutions liquidity will suffer, creating what’s known as a ‘lobster pot’ scenario.
Given the typically large positions institutions take in a stock, a problem can arise when they can’t trade out in similar volumes and the share price can be knocked disproportionately downwards by smaller trades at an ever decreasing price as the stock is offloaded. If a stock is traded infrequently then the price spread widens, and any changes in the share price are more acute, or ‘lumpy’.
Private client brokers and retail investors help add much-needed liquidity by buying and selling smaller bundles of shares at a lower price spread, encouraging a more active market. Equally, however, a share register dominated by retail investors can be subject to a bumpy ride as they are prone to trade on a more frequent basis, making decisions which are sometimes based on personal sentiment and macroeconomic news rather than company announcements.
Engaging with your audience
Retail investor engagement has become much more important in recent years, as technology has developed and now allows people to buy equities and funds from mobile devices anywhere, at any time. Individuals owned 12% of shares at the end of 2014, higher than the estimated 10% they held in 2010 and 2012 (ONS Ownership of UK Quoted Shares 2014).
Lower trading fees have also allowed a much broader profile of investor to access the market without paying prohibitive management fees. There is an ever growing collection of cheap-to-access robo-driven FTSE 350 tracker funds offering a lower risk profile, allowing investors to spread some of their portfolio risk. This also gives the opportunity to seek greater returns by investing other parts of an investment portfolio directly into chosen PLC’s in the small to mid-cap market – which are viewed as offering the highest upside.
The influence of retail investors
Retail investors have long clubbed together to share ideas and opinions, a trend which has only increased in recent times. This is evident in the numerous bulletin boards such as ADVFN, Interactive Investor and London South East. Online anonymity allows for very direct language and opinions which can be distracting to management and occasionally result in misrepresentative share price movement based on very little fact.
However, the best way to deal with such sentiment is to increase communication with the retail audience, simply ignoring the problem of a negative view will not make it go away. Rather, it is up to a company’s board to ensure that it is communicating with all investors – be they institutional or private – as clearly and openly as possible.
Communicating with retail investors
Some companies treat their retail investors with trepidation, fearing the unknown factor of a disparate, and sometimes loud, group of individuals. But collectively those retail investors will often hold more stock than the largest institutional investor. A PLC board may not have the time to engage with individual shareholders directly, but your PR/IR firm should absolutely be available to speak with individual shareholders –– this is true for companies ranging from FTSE100’s to pre-revenue AIM stocks.
There are a number of initiatives boards can pursue to ensure a level playing field in terms of providing information to all investors. The rise of new digital communications channels has proven to be an excellent platform for this wider audience, including online video content and interviews with senior management teams, as well as delivering an investor fact sheet to summarise the company’s investment proposition and presenting at retail investor events. It is important, however, to recognise that some of these events have more merit than others.
The future of retail investors
This increasing trend in retail investors is only set to grow even further, as more and more people take direct control of their investment portfolios and also begin to access lump sums from their pensions. Indeed, March will almost always be the busiest time for retail investment as the tax year-end looms and private investors start to use up their tax-free allowances on SIPP’s and ISA’s before it expires in April. Boards and management teams should be doing all they can to engage with, and ultimately benefit from, this swelling tide of individual investors looking to take a more active role in managing their money.
James Collins is a Partner at Tavistock Communications. He specialises in Financial Public Relations within the Energy sector and served as Head of Investor Relations and Communications at global London-listed company AssetCo.