IR Monitor – 25th May 2022
Investor Relations News
Another busy week in IR; we summarise some of the more interesting stories. First, a seminar discussion of how companies should get to grips with the changing role of activist investors. Second up, the Wall Street Journal looks at the scale of company share buybacks and what is underpinning those. Third, Muddy Waters CIO suggests why the UK should be a world leader in audit reform but is currently failing to be so. Fourth, the FT assesses the outlook for global dividends. The penultimate article of this week looks at recent research about the overuse of buzzwords such as “collaboration” and “innovation”. Finally, Reddit flags an investment strategy which tracked the use of South Park mentions, significantly beating the S&P 500 in the process.
This week’s news
Seminar: Best practice for engaging with activist investors
Four speakers took part in a discussion on the tactics of activist investors and how to engage and interact with them. The line-up included speakers from Georgeson and Lazard, among others. They looked at the changing role of activist investors and the various tactics they use to hold companies accountable. The panel were asked what tactics were being used by activists right now. One speaker suggested that activists within the hedge fund industry have evolved and hedge funds have responded accordingly – while activists used to trace hedge fund investments to expose them, today those funds purchase shares through a swap arrangement with a broker to prevent tracking of deals and activists thus find it harder to follow the trail. Another speaker suggested that the best defence against an activist is offence i.e. to proactively offer transparent updates to shareholders. The panel agreed that small- to mid-sized companies were the main aim for activists because hedge funds take a meaningful role in shaping those companies. All agreed that it was important for companies to continuously brief the board on all matters.
Buying back stock enjoying a discount as markets tumble
Companies that buy back their shares are getting more bang for their buck as market declines depress stock prices, according to the Wall Street Journal. Buybacks are expected to hit a record $1 trillion this year, with S&P 500 companies so far reporting first-quarter spending of $268 billion on repurchasing shares. The S&P500 is already down more than 18% through May 20, and as prices have declined, many SBB programmes are thought to represent opportunities for the buyers to regain equity in their own companies at a cheap price.
U-turn on audit reform is bad for British capitalism – Muddy Waters
An article for the Financial Times, written by Muddy Waters CIO Carson Block, outlines how the government’s U-turn on audit reform is bad for British capitalism, and how the accounting industry is failing to protect both investors and employees from malfeasance. Block says that the UK has failed to do anything so far to reform the audit industry after multiple studies and much handwringing over the matter. Despite scandals at companies ranging from Carillion to Ted Baker, little action has taken place. The root cause of this dysfunction, Block posits, is that audit firms are not held materially accountable for their failures. It is important to address this, or “capitalism’s future is far from assured”, and the UK has the potential to be a leader in audit reform.
Global dividend outlook stabilises in spite of Ukraine War
The FT claims that the global outlook for dividends has stabilised, defying fears that Russia’s invasion of Ukraine would prompt cuts to shareholder payments. According to a study by Janus Henderson, the first quarter of this year delivered a broad-based increase in company pay-outs across all industries, led by oil and mining groups riding the resources boom. Fund managers nevertheless have warned that the prospects for dividends – which are a key source of income for many retirees, pension funds and charities – face considerable uncertainty and are particularly vulnerable to a downturn in the commodities sector.
The woolliest words in business
The Economist has got to work analysing the woolliest buzzwords in business, including “innovation”, “collaboration”, “sustainability” and “flexibility.” These words, which the article claims coats consultants’ websites, blanket candidates’ CVs and spray from managers mouths, are anodyne to the point of being useless. These key words are ubiquitous because they are hard to argue against yet they hold little value. Wooliness, claims the Economist, is the enemy of accuracy as well as utility. The op-ed represents a plea to quality firms to put more thought into their words and to manage their language far more carefully.
And finally … Could an analyst rating be less important for your company than a mention from Cartman?
Forum Reddit has posted the mighty success of an investment strategy that tracks South Park mentions and has beaten the S&P and Nasdaq by an astonishing margin over the last seven years. Posted by user DataIsBeautiful, the graph shows a 1500% growth from March 2020 for the keyword -tracking method, compared to a significantly slower growth of the S&P 500. Of course, correlation and causation should always be taken with a dose of scepticism – but this investing strategy has nonetheless bred healthy discussion on the forum.
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