Retail investors post-crisis

Jul 17, 2009

An important audience that IROs lack the resources to pursue

Retail investors, like every slice of the financial pie after the global bake-down, are under examination. According to Rivel Research Group’s ‘one-minute survey’ of 204 Shareholder.com clients, retail investors are essential for 9 percent of companies and important for another 51 percent. Yet only around 20 percent of companies actively seek them, mainly with the goal of building a base of loyal shareholders. Among the rest, the top reason (53 percent) for not doing retail IR is a lack of resources.

Are retail investors more or less important than they were before the downturn? How can a company attract loyal retail investors? How is retail IR being transformed by social media? These are among the questions that will be addressed in a live panel discussion to be webcast from NASDAQ MarketSite in New York on Tuesday, July 21.

Before the financial crisis, institutional ownership had been gradually rising. But the trend seems to have reversed in the meltdown, with retail investors providing buying support as institutions fled. For example, retail investors were heavy buyers of bank stocks in Q4 2008 and Q1 2009.

‘The time to focus on your retail campaign is when you’re at a low PE,’ suggests Peter Breen, managing director of the Vokser Group, chief strategist for BetterInvesting and one of the Tuesday event’s panelists. ‘Retail investors with a long-term horizon are looking for those opportunities.’

While depressed stocks may be attracting sophisticated, seasoned retail investors, Breen worries the downturn may have turned others off stocks altogether. ‘There’s a high probability that we could lose an entire generation of retail investor interest,’ he says. ‘Today’s college students are looking at their moms and dads being gutted by the downturn. If anything, they’ll be looking at mutual funds and ETFs, so it’s important for IROs to get out there and build interest in individual stocks.’

Another panelist, NIRI CEO Jeff Morgan, will focus on governance and disclosure, including proxy access and the change to NYSE rule 452 eliminating the broker vote in director elections. ‘All these changes empower investors to fix problems at companies. But if retail investors don’t vote, they won’t have a voice, so companies will have to spend more time and effort to communicate with them during proxy season,’ he says.

With institutional investors gaining power, the current system of shareholder communications needs revamping. For example, NIRI has been advocating for companies to have more direct access to beneficial shareholders and more timely and complete information about institutional holdings.

‘The SEC is making all these governance changes but our proxy system is broken. We need to be able to communicate with our shareholders and we need to know who owns our shares,’ Morgan says. ‘The SEC is listening and I’m hopeful that they’ll take a hard look at the proxy system.’

Morgan will also cover social media in retail IR programs such as Twitter, blogging and Facebook.

The other panelists will be Matt Bird, CEO of MUNCmedia, and Friederike Edelmann, IR director at Germany’s SAP. Neil Stewart, IR magazine’s executive editor, will moderate. The live video webcast will be on Tuesday, July 21 at 2 pm EDT. Pre-register at www.shareholder.com/NDQCCG/MediaRegister.cfm?MediaID=37555