IR Monitor – 12th April 2021

This week’s news

Business bounceback: coronavirus, vaccine passports & the future of work

FTI Consulting has released the results of its research on the views of 250 global institutional investors on coronavirus, vaccination passports, and the return to work. The research found that, on average, institutional investors expect workers to be allowed to work from home almost half of the time (48%) following the end of WFH requirements. 92% of investors continue to experience significant problems in resuming in-person meetings, and on average they expect such meetings to resume six months from now. With regards to vaccine passports, 70% of investors believe that their introduction for purposes of international travel is “definitely likely” or “highly likely”, with 45% expecting a “common global approach” to be adopted.

ESG investing may benefit consultants more than investors

Whilst ethical investing has attracted a lot of attention in recent years, its true impact on portfolio returns has been hotly debated. Forbes cited research from a recent paper which found that whilst companies do suffer for their poor ESG credentials, the benefits of an ESG focus are harder to find, both for a company’s financials and their investors’ returns. The paper, entitled ‘Valuing ESG: Doing Good or Sounding Good?’, found that companies that strongly violate ESG norms appear to underperform the market, experiencing a performance drag of around 3.5% a year. The research also found that ESG firms may enjoy lower discount rates, although this does not mean that they deliver superior results. The article suggests that perhaps it is not the financial returns that justify ESG investing, but rather the fact that it is “the right thing to do”.

Are index funds ‘worse than Marxism’?

For millions of US investors, getting into the market no longer means picking stocks or hiring a portfolio manager, but instead involves pushing money into an index fund. Thanks to ultra low fees and strong long-term performance, more money is now invested in passive funds than active funds in the US, with index funds now controlling 20-30% of the US equities market. However, what’s good for retail investors might not be good for markets, companies or the economy, with analysts at Bernstein describing passive investing as “worse than Marxism”. The analysts raise concerns that a world with exclusively passive investors would result in capital being allocated only to big companies and not to promising or efficient companies (and it would also, incidentally, be a world without investor relations). The Atlantic has also noted that the rise of index funds may be making firms less competitive through “common ownership”, which could in turn be leading to rising corporate concentration.

SEC could be cracking down on SPACs

While company guidance around SPACs is currently very basic, Market Watch has flagged an attempt by the Securities and Exchange Commission (SEC) to address the somewhat laxer rules in comparison to traditional IPOs. In order to anticipate any potential issues that could result from the spike in SPACs, the SEC last week circulated a statement to staff to remind companies of the rules. There is speculation that the SEC is seeking to push back against SPACs, following the disclosures of multiple investigations into the newly popular funding mechanism. The SEC has opened a general inquiry, sending letters to investment banks involved in SPACs to gather information on how underwriters are managing risks. However, at present, the SEC’s warning is precisely that, a warning, and is simply a reminder that companies are under the Commission’s watchful eye and that they are going to be held accountable. For now, SPACs still retain their leeway in terms of forecasting (that is not available to a standard IPO), an exemption which has possibly been the driver behind the current frenzy thanks to executives’ ability to make outlandish financial predictions.

Bloomberg under scrutiny

Bloomberg News was caught short in an insider-trading scandal last month after New Yorker, Jason Peltz, was indicted on multiple counts of securities fraud, money laundering, tax evasion and lying to the FBI. As reported by the Columbia Journalism Review, central to the case was Peltz’s interaction with Bloomberg News, which published multiple stories not long after the trader arranged to make large purchases of the companies’ shares. The journalist who worked as an author on all five incriminating news stories cited by federal officials was Ed Hammond, Bloomberg’s senior deals reporter in New York and former Financial Times journalist, although neither Hammond or Bloomberg are named in the indictment. The unspecified financial reporter is alleged to have provided “material non-public information about forthcoming articles” which Peltz used to trade in the market shortly before publication of an article about each company written by the reporter. The indictment refers to numerous communications between Peltz and the reporter, including at least one in-person meeting. Journalists who pen stories on corporate deals are witness to highly sensitive information, and at Bloomberg, exclusive news on deals is highly valued because beating competitors like Reuters or Dow Jones helps to justify the high price of a terminal.

And finally…the tyranny of woke culture

There is a new 21st Century religion – woke cultural nihilism – and the history of religious war should serve as a warning to the religious converts who inhabit the offices of American corporations. According to the Wall Street Journal, C-Suite executives such as those of Delta Air Lines and Coca Cola are increasingly engaging in modern worship and, after having long and financially lucrative careers, many executives have now come to criticise the society that benefited them. For many corporate leaders, the new religion means a tendency to eschew responsibility and place it on the shoulders of others. This was most recently evidenced by executives’  denouncement of Georgia’s new voting law. However, these new woke disciples are not safe from the fire of the culture war. Amazon boss Jeff Bezos, who has been notably correct, was last week harshly criticised by Senator Elizabeth Warren, who threatened to break up Amazon after some sharp Twitter exchanges with the company’s employees. The lesson, suggests the WSJ, is that appeasing woke culture, or religious tyrants, will only win corporate leaders a reprieve at best, and CEOs are at risk of becoming engulfed in the flames of a cultural war.

Webinars

14 April: EM Energy & Commodities Conference, Wood & Co. (Virtual)

15 April: Horizons in Oncology Virtual Conference, Canaccord Genuity (Virtual)

16 April: Biopharma Team Doctor Day Series: Rheumatology / Inflammation / Dermatology, RBC Capital Markets (Virtual)

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