IR Monitor – 31st August 2021

This week’s news

Global dividends on track to hit pre-Covid levels as Q2 payouts soar

Investment Week has explored the current rise in global dividends, with analysts predicting dividend payouts will return to pre-pandemic highs in the next 12 months. According to the Janus Henderson Global Dividend Index, a dividend recovery is underway with payouts from companies restarting payments reaching $33.3bn (which contributed three-quarters of underlying growth in Q2). Across Europe, half the headline growth of 66% was driven by companies returning to their normal dividend timetable. Dividends from mining companies grew fastest (as they benefitted from booming commodity prices), while in the banking sector, the recovery began in those parts of the world where regulators provided more clarity on an acceptable level for dividend distributions such as Australia, Europe and the UK.

Warning Signs Flash As Record Equity Issuance Surpasses Dot-Com

Zero Hedge has suggested that US firms and Wall Street collectively understand that now is the perfect time to ramp up equity issuance due to the current conditions of the market: easy money, low bond yields and retail traders buying everything. Stock issuance has recently surpassed Dot-Com levels to record highs. In a recent client note, Grantham Mayo Van Otterloo & Co noted that stock issuance in 2021 is “blowing away the last high set in the run-up to the Tech Bubble. This is a dubious item to celebrate if history is any guide”. Excess supply may drown out the market, though buybacks have also been accelerating (and these provide some offset). Particular equity issuances have come from SPACs: in fact, capital raised by SPACs in the first half of 2021 account for more than the last 20 years combined.

Long-Term Stock Exchange has first listings after 2019 launch

Last week, Silicon Valley’s newest stock exchange officially listed its first two companies, via a dual public listing of their common stock.  Asana, a cloud software company set up by Facebook co-founder Dustin Moskovitz and former Google and Facebook engineer Justin Rosenstein, and Twilio, a cloud communications platform, are the first to list on the Long Term Stock Exchange. Speaking to IR Magazine in December 2020, Michelle Greene, president of the LTSE explained how they were “really trying to do something different from any other exchange by innovating on the listings side”. In the same interview, Greene said that the LTSE would target companies that are already public and companies that are thinking of going public in a different way’. The premise is that companies and investors perform better when they are enabled to focus on long-term strategies.

The Future of Shareholder Activism Won’t Be Led by Hedge Funds 

At present, there are two main types of shareholder activism: the more traditional firm-specific activism (which focuses on specific companies) and systemic risk activism (which aims to reduce systemic risk in the larger market). Institutional Investor has analysed the growing shift towards the latter as investors move away from the classic approach of targeting improvements at a single company. According to Columbia University School of Law professor John Coffee, firm-specific activism may be phased out by systemic risk activism in the coming years, as investors emphasise issues like climate change and diversity. However, Mr Coffee noted that for all but the top-three index managers (State Street, BlackRock, and Vanguard) systemic risk campaigns may be a losing proposition. With these three firms owning almost 25% of the S&P 500, they are the only institutions capable of benefitting from improvements generated across whole swaths of the market. The problem for the traditional firm-specific campaign is that it often decreases the stock price. For your average hedge fund “There is a dilemma here in trying to run a campaign that benefits the portfolio, but hurts the target company’s stock.”

The ESG investing industry is dangerous 

In an opinion piece in the Financial Times, Robert Armstrong discussed the recent essay written by former Blackrock sustainable investment chief Tariq Fancy. Many of Fancy’s claims about ESG investing have been made before; the significance of what he writes comes from how he says it and who he is. Fancy believes that the ESG project is “intellectually bankrupt” and is damaging to the cause its claims to support. Armstrong lays out the seven key arguments that Fancy uses to criticises the “ESG industrial complex”; he claims that the strongest of these arguments is that it is wrong to give people the idea that they can make a real material difference to climate change by simply shifting their savings from one investment fund to other. It creates a distraction from the real solutions that fit the scale of the problem, all of which involve reforming the rules of capitalism through regulation.

And finally … Vacation 

Bloomberg has focused on the importance of rest and how it improves tasks involving judgement. A recent paper (entitled A Ruffled Mind Makes a Restless Forecast: The Effect of Rest on Analyst Forecast Accuracy) found that after holidays, earning forecasts issued were on average 55 basis points more accurate than those issued prior. Forecasting earnings is a complex process that requires analysts to consider many different factors. A stressed and tired analyst will have reduced mental bandwidth and will likely engage in oversimplified reasonings and flawed forecasts. Those who are well-rested, by contrast, have the capacity to weigh different factors more carefully and will produce a better forecast. Companies should let the analysts enjoy their holidays.

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