IR Monitor – 19th January 2022

This week’s news

Private markets & private companies

Asset managers are increasingly looking beyond public markets for decent returns. Already worth around $8 trillion, private markets are looking ever more appealing in the context of rising inflation. Although reduced liquidity vis-a-vis public markets is a concern for some, the Financial Times has suggested that we might be on the cusp of a democratisation of private markets. Indeed, the London Stock Exchange has proposed the creation of a special market for private companies to trade their shares publicly on the exchange during certain days, as reported in the Wall Street Journal. This forum would act as a steppingstone between private and fully public markets, and would allow private companies to participate with lower levels of regulatory oversight. It might also open up a whole new territory for Investor Relations Officers.

Most companies update crisis plans in light of Covid-19, finds research

The majority of IR professionals report that their companies have updated crisis management plans since Covid-19, according to research from the IR Magazine. The likelihood of a company having adjusted its crisis plan is correlated to company size and to the region in which it operates; mega-cap companies are more likely to have updated their plans than small-cap companies, and whilst 77% of Asian companies have done so, only 55% of European companies have. Changes have tended to incorporate hot-button topics, such as employee wellbeing, remote working and supply chain management. Interestingly, the report highlights that formalised crisis plans are not yet standard practice across the board – 11% of respondents reported that their companies do not have an official plan at all, while  13% were unsure.

Taking AIM: the City needs a light touch, junior stock market

The Sunday Telegraph has made the case for a revival of AIM. Established to provide a British equivalent to Nasdaq, the exchange has fallen somewhat out of favour in recent years, often being overshadowed by counterparts in US and Asia. It currently lists only half as many companies today as it did in 2007, and one of its biggest stars, ASOS, has recently decided to graduate to the main London stock market. Yet, hope is not lost – a more relaxed, light-touch equity market is billed as important in attracting new companies and investors to the UK. Some proposals to revitalise AIM include lower rates of capital gains tax for those holding AIM shares, allowing crowdfunding platforms to be linked to AIM, and easing regulations so that AIM companies are less burdened with governance codes and listing requirements.

Day traders as ‘dumb money’?

Amateur investors are rocking the investment world according to the Wall Street Journal this week. A recent survey has shown that around 85% of hedge funds and 42% of asset managers are now tracking retail-trading messaging boards, in an attempt to understand how the trend will continue. As Covid-19 forced millions of people into lockdowns at their homes, social media became the hotspot for amateur investors who wanted guidance on where to invest. Over the past 18 months, JPMorgan estimates that individual investors have made up more than 1/3 of daily trading activity on several occasions. GameStop is a prime example of this influence; hedge funds were assuming this stock would fall until amateurs sent GameStop to the top. As a direct consequence of this amateur activity, some professional (and allegedly smart) investors have had to reassess their own trading strategies.

Dividend addiction: shareholders “starving UK companies of cash”

An obsession with dividends is putting companies off listing in London says The Times this week.  George Godber, manager of Polar Capital’s UK Value Opportunities fund, has suggested that when he meets CEOs they invariably claim that the reason behind their dividend focus is shareholder pressure. Whilst a key feature of the London stock market, dividends create a bias towards income-producing companies such as banks and oil majors which, in turn, arguably inhibits the diversification of the London stock market. Chancellor Rishi Sunak is trying to attract more tech offerings in London to establish a big, listed tech sector in the UK, a challenge made all the harder given the recent problems faced by Deliveroo and The Hut Group. Whether this can succeed in the face of dividend addiction is yet to be seen.

And finally … Investment star Terry Smith attacks Unilever for ‘ludicrous’ focus on ESG

To wrap up this week, Unilever has come under fire from the manager of the Fundsmith Equity Fund, Terry Smith, for taking ESG considerations to an extreme. Writing to investors in his fund, Mr Smith referred to Ben & Jerry’s-gate – when the Unilever-owned company refused to supply the West Bank, instantly politicising their own product. But he suggests that there are far more ludicrous examples which illustrate the problem. Smith’s outburst came after profits fell  4% for Unilever in the first half of 2021. To quote: “A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches).”

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