IR Monitor – 27 November 2024

In this week’s newsletter:

• Every stock has a story: how to invest beyond the numbers (and how to tell that story) 
• Stock analysts, upgrade yourselves from Sell to Hold! The UK has reworked the misguided rules that damaged the economics of investment research. Bloomberg suggests that aping the US model is welcome — as a first step
• The City is sticking with its diversity push even as Wall Street investors pressure companies to cut spending on such programmes: The Telegraph on a tale of two cities
• IR Magazine on why IR teams are using finfluencers to help them reach investors. IROs say that retail investors are increasingly using alternative channels to find companies
• FRC plan to drop ‘environment and society’ from stewardship code for institutional investors. The Times reports on concerns that the original FRC wording implied that making money for clients must always deliver additional wider benefits
• And finally…Bloomberg on the the dangers of social media: Palantir director deletes X account after controversial post; SEC to investigate

This week’s news

Every stock has a story

Focusing on ‘safe’ financial metrics and hard data alone may hide a company’s growth potential. Sometimes, a company’s mission and story can reveal its untapped value as an industry pioneer or market disruptor. Finmize explains how effective investing decisions are made when both the figures and the narrative of a company are taken together. Relying solely on traditional metrics, such as price-to-earnings ratios and return-on-investment  percentages, can lead investors to overlook opportunities in rapidly evolving sectors. For example, Amazon in 2014 appeared to be a risky bet with thin profit margins and an aggressive growth strategy. But its evolving mission as an innovative tech company expanding into cloud computing with Amazon Web Services showed investors that the company was on a longer-term path of growth in new markets. A careful balancing act between optimistic, forward-looking narratives and metric-informed insights can therefore allow investors to gain a deeper judgement on potential investments and better understand the companies shaping future sectors. After all, investing is an art, as well as a science.

Bloomberg: Stock analysts, upgrade yourselves from Sell to Hold! 

Bloomberg reports that recent reforms to equity research have allowed the UK to rework Europe’s MiFID II rules that have damaged the economics of investment research. Historically, brokers produced equity analysis to stimulate trading in stocks, funded by commissions on trades. The traditional complaint was that this payment system made it difficult for independent research firms to compete with large brokers in selling equity research as a separate paid offering,  and the system left ‘Buy’ and ‘Sell’ ratings vulnerable to conflicts of interest. However, after the MiFID interlude, the UK FCA has recently begun permitting the use of bundled payments once again to support equity research, with the aim of boosting investment-research spending on smaller, independent equity research analysts. Although material changes may not be felt until 2026, FCA reforms will require asset managers to be more transparent in their research spending by category to mitigate excessive coverage of large stocks at the expense of the smaller innovative names more likely to be covered by independent researchers.

The City is sticking with its diversity push even as Wall Street investors pressure companies to cut spending

Last year, over half the members of the UK’s Investment Association were forced to cut costs but none chose to scrap diversity initiatives. By contrast, Wall Street counterparts are slashing funding to Diversity, Equity and Inclusion (DEI) company programmes, The Telegraph reports. The data provided by the Investment Association, which surveyed 58 investment and fund managers who collectively employ 37,000 people in the industry, demonstrates how fostering DEI initiatives remains a valued strategic objective for City investment managers despite cost pressures. In contrast, industry backlash against similar initiatives in the US is expected to escalate further under Trump’s new administration. US corporations such as BlackRock and Harley Davidson have faced pressure from ‘anti-DEI’ activists to reverse company plans related to diversity targets and ethical investing. 

Why IR teams are using finfluencers to help them reach investors – IR Mag 

Amidst increasing digitalisation in all facets of business, it is the turn of IR professionals to keep up with the dynamic trend of online influencers to reach investors. IR Magazine details the steps for success when working with influencers through the use of podcasts, Instagram and TikTok. An example of this comes from Purcari, the multi-award-winning Moldovan winery, that has formed successful, working relationships with reliable influencers who have a strong background in finance and capital markets. Through nurturing organic relationships and not prescribing the influencers’ content to a set narrative, Purcari have increased their percentage of retail investors four-fold in five years. There are, however, risks that must be considered for any IR professionals with their sights set on a partnership. With tight disclosure regulation and the need for regular content monitoring, using finfluencers is still a relatively new practice, but is certainly one to watch. 

FRC plan to drop ‘environment and society’ from stewardship code 

The FRC has revised its UK Stewardship code – which sets standards for asset managers, insurance and pension funds to explain to savers and pensioners what they are doing with their money and to prevent unethical decision-makin – reports The Times. By removing the stipulation that good stewardship should lead to “sustainable benefits for the economy, the environment and society”, the FRC has removed the implication that delivering results for clients must also deliver wider benefits. This move is intended to provide clarity and flexibility for signatories to determine the factors that support their particular investment objectives. The decision also comes as a result of discontent from investors who stated that they were less inclined to invest in UK businesses due to added regulatory burden. Comprised of 287 signatories with over £50 trillion of assets under management, the UK Stewardship Code hopes to be able to continue to support strong economic growth through the streamlined reporting. 

And finally … Palantir director deletes X account after controversial post

Alex Moore, a partner at Eight Partners LLC and a member of Palantir’s board of directors since 2020, has deleted his X (formerly Twitter) account following a post that the company’s plan to move its listing to the Nasdaq Global Select Market from the New York Stock Exchange was intended primarily to benefit its retail investors.  Bloomberg reports that although Palantir itself did not provide any specific reasoning behind the change in the listing, Moore suggested in his deleted post that the move to Nasdaq would “force billions in ETF buying” and that everything the company does is to “reward and support our retail diamondhands [sic] following”. The logic is that Palantir’s entrance into the Nasdaq 100 index would compel ETFs that track the index, such as the roughly $300 billion Invesco QQQ Trust Series 1, to buy the shares. The Securities and Exchange Commission will commence investigations into trading activity at the time of the post, and there is speculation that Moore may be removed from the board. 

For further information on the dedicated investor relations team at FTI Consulting, please contact [email protected].