Every listed Mexican company has a target list of investors, local and foreign, actual and potential. Here we provide a simple guide to who’s who, so as to help Investor Targeting. Arguably the most important part of the job of an Investor Relations officer is know his investor base, actual and potential, who can and cannot buy the stock, and in what size and for what reasons. As always Miranda-IR is happy to help target new investors for its clients.
(X%) = Percentage of stock held
Local Mexican market
Since AFOREs (Mexican pension funds) were allowed to invest directly in stocks, (and not just in ETFs), and as foreign investors have cut holdings in emerging markets such as Mexico, the local investor market has steadily grown in importance for the average Mexican company. For mid and small caps, local investors probably make up over 50% of the average free float. For the large cap stocks (América Móvil, WalMex, Femsa), foreigners still dominate, but even there their share of the float has fallen over this decade as AFOREs in particular have grown in importance. All this means that Investor Relations teams need to focus on the local market, and treat local investors in a similar way to how they treat those outside Mexico.
Institutional Mexican market
On the institutional side, AFOREs are by far the largest investors in Mexico. Afore XXI Banorte, Afore Citibanamex, AFORE Sura, AFORE Profuturo are the four largest of the ten AFORES in Mexico, and indeed are among the 300 largest pension funds in the world. AFORES invest about 6% of US$270bn of assets in local equities, implying about US$16bn in local equities. The AFOREs will usually try and beat the local index (IPC) which means most of their investments are in companies that comprise the index, although off index investments are common.
https://www.consar.gob.mx/gobmx/aplicativo/siset/CuadroInicial.aspx?md=2
(Figures in millions of pesos as at the end of July 2020)
Source: CONSAR
(From January 2012 this includes the proceeds from workers pending assignment, which are administered by Banco de México.)
Outside AFOREs, local investors include equity mutual funds (generally on behalf of retail investors), such as those from Bancomer, Blackrock Mexico, HSBC, SURA, Santander, Scotia, Actinver, Inbursa, GBM., Vector etc. These funds generally seek to outperform the IPC index, which means that again companies outside the index often face an uphill struggle of garnering attraction. That said, mutual funds typically are more flexible than AFOREs in going off index and some funds (GBM’s) have strong style biases (turnaround and value), so if your company meets their criteria they can be a source of new money even if you are outside the index. Two ESG mutual funds in Mexico have launched this year (Blackrock and Santander) which means they can be source of new money for companies with a strong ESG track record.
Complementing mutual funds are direct stock investments outside mutual funds by retail or private banking money, including family offices. The most active private banks in Mexico are BBVA, Santander, Scotia, CitiBanamex, Banorte, Actinver, GBM, Invex, and some multi-family offices such as MG Capital becoming more important. Retail money is an important source of liquidity as individual investors often trade in and out of stocks quickly, and at smaller sizes. While the retail money has diversified internationally in line with poor performance of local Mexican stocks, there is still a home market bias in retail investing. People prefer to invest in what they think they know.
Passive investing in Mexico has grown rapidly, mainly through Blackrock’s Naftrac, although Vanguard has its passive local product offering, and so many local broker dealers. There are also a small handful of Mexican hedge funds (AM Capital) and insurance companies that invest in equities (Qualitas, Inbursa). Both institutional and retail investors buy the passive products. As Blackrock has both active and passive funds, it can be difficult to ascertain if the company is actively invested in a stock or not.
Foreign
Institutional
Foreign investment in Mexican stocks is driven by asset managers with a remit to invest in Emerging Markets, with Mexico about 5% of the emerging market equity assets. Blackrock, JP Morgan, Capital, Templeton, Wellington, Fidelity, T Rowe Price, Schroders, UBS, are some of the largest EM players. As almost all of these big funds both manage institutional money for pension funds, and retail money for mutual funds, it is difficult to separate retail money from pension money (often the pension fund and mutual fund are mirrors of each other and managed by the same person). The mutual funds need to disclose their holdings, a vital source of information for all companies, and available on Bloomberg among other places. Apart from finding themselves in the Emerging Market fund (Blackrock, Capital…), Mexican companies can form part of a global fund, a sector fund (Fibra Uno in a real estate fund, AMX in a telco fund, Banorte in a bank fund..), a Latin American fund (JP Morgan, T Rowe Price, many in Chile and Brazil..), a style fund (high dividends, high growth, small cap, ESG etc).
In all these cases it’s fundamental to understand what the investment criteria is of the fund, and whether an investment in your company is realistic or not. Many of these funds have minimum liquidity and market cap limits. The easiest way to determine if a fund is potentially a target investor is to look at what else it invests in, and whether your company is similar to its other investments. You can conduct an analysis of the investors in your peers (similar companies in Mexico or similar companies outside Mexico) and reach out to those that are not invested in your own name. ESG funds are growing rapidly and can be good new opportunities for select companies.
Hedge funds (Millenium, Crestwood, AQR, Discovery, Citadel, Elliot, Renaissance Technologies etc.) are another source of investment fund, especially those with a regional focus (i.e., pan LatAm hedge funds in Brazil such as BTG Pactual’s). Some private equity funds and family offices have taken large positions in small cap Mexican stocks (HCity, Hoteles Santa Fe) and are interesting opportunities. (Most of the big global hedge funds, such as Bridgewater, have tended to avoid LatAm due to lack of liquidity and poor returns). Global retail investors tend to avoid locally listed Mexican names, but are relevant in companies with ADR or NYSE listings, such as Volaris, Cemex, Mercado Libre, América Móvil.
As elsewhere, passive investing has grown much faster than active investing, with BlackRock leading the way through EWW, its local Mexican EFT; and indirectly through EEM, its emerging market ETF, although Vanguard is also important. There are also sector and global ETFs in which the odd Mexican large cap will be found.
In short, there are a myriad of investors, in and out of Mexico, that can invest in a given Mexican stock. It’s key to be patient, proactive (adding potential investors to your distribution list) all the time, check out your peers’ investor bases all the time, keep track of those who join your conference call, and understand what funds are looking for when making an investment. Like dating, you need to be open minded but also focused and available when the right person comes along.
Further reading on investors:
https://www.irmagazine.com/buy-side/field-guide-investors
https://www.irmagazine.com/buy-side/deciphering-active-and-passive-market-dynamics
https://westwicke.com/2019/08/strategies-to-target-the-right-investors/
