IR Monitor – 8th December 2021
Investor Relations News
We are in the rebirth of the roaring twenties, according to the FT this week, as investor activism is predicted to reach new heights in 2022. On a more sober note, ZeroHedge have asked questions about why CEOs and corporate insiders are now selling stocks so rapidly- is a crash around the corner? We then look at the Financial Conduct Authority which has announced in a policy statement that it is getting rid of MiFID II rules on research for small caps. Yesterday we attended the IR Society’s webinar on Targeting Private Wealth, with FTI’s very own Ben Craig, discussing how effective investor targeting can widen the available pool of capital for a company. Turning to less harmonious relations, Tim Martin has been unhappy with Fidelity after they voted against the re-election of two JD Wetherspoon non-executive directors. Finally, the FT has offered some thoughts on the widening gap between markets in the UK, China and the US.
This week’s news
Investor activism: a ‘golden age’
Low valuations and greater discourse around ESG will mean investor activism goes from strength to strength in the new year, predicts the Financial Times. Britain is most vulnerable to activists because of the underperformance of UK corporates in comparison to European peers; no doubt, Brexit and the economic repercussions of a global pandemic have perpetuated this. Looking further afield, Germany is also set to also become a breeding ground for activism. According to researchers, Germany’s declining P/E ratio relative to the rest of Europe is a likely contributing factor to this golden age for activism.
What do they know? Insiders are dumping stocks faster than ever
ZeroHedge has been pondering why CEOs and corporate insiders have sold $69bn dollars worth of stock so far this year – a new all-time record. Persistent supply chain issues in the US and rising inflation are well-documented. The usual turnover produced by Black Friday was down 28% from 2019 with little sign of e-commerce offsetting this; in fact, sales on Cyber Monday were also down for the first time ever. The doom and gloom doesn’t end there with the arrival of Omicron. There are many clouds on the horizon and selling by CEOs is likely to remain a troubling question for IROs everywhere.
FCA scraps MiFID rules on small caps
As reported in Investment Week, the Financial Conduct Authority will scrap MiFID II research rules for companies with a market capitalisation of less than £200 million in order to increase research coverage of SME issuers and “create a regime that is proportionate to the risks of inducements that arise.” The FCA published this policy statement on 30 November 2021 and explained that the new inducement rules will allow brokers to provide research on firms below the threshold to asset managers for free. This may come as a relief in the more under-researched corners of the stock market.
Targeting Private Wealth webinar
On Tuesday 7 December, our very own Ben Craig, sat down with Gareth Hayward (Charles Stanley), Andrew Downey (Phoenix Group) and Robert Irvin (RMS Partners), to discuss targeting Private Wealth Investors. The ‘how’ question from Irvin evoked varied responses: Andrew Downey emphasised a tailored approach of 1-to-1s and group sessions, during which a CFO can present and directly engage with an audience. He summarised: “it’s a relationship business”. Ultimately though, it is an open mind which is the best tool, doing due diligence, reflecting and then acting, Gareth Hayward explained. This was echoed by Ben Craig who offered insight into the world of younger retail investors, who tend to have broad preferences around greener stocks, are less interested in fundamentals and more interested in visionary CEOs. Across the board, it is loyalty and reputation which prevail as the cornerstones of effective targeting.
The relationship between investors and boards is on the rocks
Tim Martin is at odds with Fidelity, the investor which voted against the re-election of two JD Wetherspoon non-executive directors. The Times has suggested that Martin serves up nearly as many attacks on investors as he does pints. Joking aside, the newspaper claims that Martin is not the only one who has reservations about the ‘box-ticking’ mindset adopted by so many institutional investors. The institutions have criticised British boards for being ‘over-cautious,’ with too many white, male, retired executives, but the same could easily be said of the institutions in many cases. The conclusion is clear- couples counselling may be in order.
And finally … London is becoming the Jurassic Park of stock exchanges
According to an opinion piece in the Financial Times, the UK stock market is becoming a global backwater as the US and Chinese markets surge ahead. London has largely missed out on the global rally, which began in 2015. The US and Chinese stock markets have clear initial advantages with leadership in many of the new industries driving stock market performance (such as fintech, renewables, and mobility, as well as medtech, agritech, and artificial intelligence). This is missing in the UK arguably because of the prevalence of income funds. These promote dividends first and foremost which limit reinvestment and thereby inhibit growth. Author Paul Marshall goes so far as suggesting that London is becoming the Jurassic Park of stock exchanges.
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