IR Magazine Retail Investors Report Summary

This week we are looking at the key take-aways from the recently published USA-centric IR Magazine Retail Investors Report. The full report can be found here and is based on research from the Global IR Survey conducted in the first quarter of 2021*. While the report mainly applies to US, European and Asian retail investors, who are far more relevant in their respective markets to companies than Mexican retail investors, we think many of the conclusions apply – especially as, even in Mexico, retail app investing (via GBM+, Kuspit, among others) is also taking off.

The report addresses key themes including retail investment levels and IR engagement with individual retail investors, whether IROs are happy with the level of retail investment in their company, the best way to communicate with retail investors and the benefits and challenges associated with retail investors. The report comments that retail investor relations is not often covered by studies as the average retail investor holding of a company is 14% versus 59% for institutional investors (with the remaining 27% being categorized as ‘other’ in this report). However, they argue that “the importance of retail investment goes beyond the capital it provides”.

45% of respondents came from North America, 30% from Europe, 13% from Asia and the remaining 12% were from the rest of the world. In terms of market cap, 24% were small cap, 31% mid-cap, 33% large cap, 10% mega-cap and the remaining 2% did not state their market cap. Respondents came from a broad range of sectors.

Key Facts

Communication: In terms of communications, press releases and IR websites are considered the most effective ways for IROs to communicate with retail investors.

Benefits and Challenges: A retail investor base brings benefits such as enhanced liquidity and stability; conversely, a perceived lack of knowledge, compared with institutional investors, is seen as the biggest challenge posed by retail investors, with communications being the biggest challenge for small caps.

Retail Investment Levels

As mentioned above, the study found that on average institutional investors hold over four times the number of shares of retail investors. There is a clear increase in retail investors in small cap companies, where 23% of shareholders are retail investors, compared to 11% for mid- and large cap and 10% for mega-cap companies. In terms of regions, retail investors hold the lowest proportion of shares in European companies. Europe also has the largest institutional to individual shareholder ratio, with institutions holding almost five times as many shares as retail investors. By contrast, “North American companies have a higher proportion of shares held by both individual and institutional investors than the global norm.”

How IROs Feel about Retail Ownership Changes

The report found that 55% of IROs are happy with their current level of retail investment, but over 25% would like to see this percentage rise. As the percentage of retail investors in a company increases, the number of IROs who wanted to see a higher proportion of shares held by individual investors decreased from 36% by approximately 10% for each bracket (0-10% retail, 10-20% retail and over 20% retail). In line with this, the number of IROs who want to see fewer shares held by retail investors increases as the percentage of shares held by this group increases, with only 4% of companies with 0-10% retail investors wanting to see a reduction in their holding, 24% for the 10-20% bracket and almost half of IROs want to see a reduction in the retail holding if their current holding is over 20%. This results in IROs of companies with 0-10% of shares held by retail investors being the happiest with their level of investment and those with over 20% being least happy with the individual investor stake.

In terms of changes in the retail investor stake in companies, almost 30% of companies have seen an increase in retail investment in the past 12 months and over 25% have seen an increase compared to three years ago. The opinion of IROs of companies where the holding has increased of the past year and of companies where it has decreased of the past year was almost equally split between wanting a lower proportion, a high proportion and being happy with the level of retail investors. However, 70% IROs of companies where the level of retail investors has remained the same over the past year were happy with the current level of investment; 23% would like to see a higher proportion of shares held by individual investors.

Questions from Retail Investors

The study asked IROs about the questions they receive from retail investors. The responses were mixed, with some IROs mentioning that there is a notable difference in the type of questions asked by individual investors, often focusing on short-term issues such as dividends, share price and short-term P&L, with less of an interest in long-term strategy and business culture compared to questions from institutional investors. This view was most common in IROs who would like to see a reduced retail investor stake in their company.

How to Increase Retail Shareholder Engagement in a Digital World

The report suggests that with the increase in the access to retail investment via digital platforms and apps and the younger demographic of these tech savvy investors (Millennials and some Generation Z), there are three key ways to increase engagement with retail investors.

1)      Think Digital

• Leverage technology, social media.
• Enable digital voting “3 million retail positions were voted on mobile devices (up from 2.7 million the previous year)”. E.g. incorporate QR codes on paper documents to facilitate digital voting.
• Consider design to communicate your messages in the most impactful way.
• Digital proxy experiences could help to increase the number of retail investors.

2)      Keep Virtual Annual Meetings

• The convenience of virtual shareholder meetings (VSMs) has translated into great retail shareholder engagement.
• VSMs have led to greater attendance per meeting, an increase in question submissions and more voting.

3)      Be ESG Ready

• Morningstar reports that there was a huge increase in net flows into ESG funds in 2020, reaching $51 billion, twice the total for 2019 and nearly 10 times that of 2018.
• Issuers should keep retail investors in mind when adopting new frameworks for transparency and disclosure and communicating their ESG story, especially when this is through consumer-centric channels.
• Use targeted ads, social media or even SMS to communicate your company’s value and values to positively impact brand perception and promote shareholder loyalty.

If you require any assistance with retail investor strategy, please contact Miranda IR and we would be happy to help. 

*For this report, market cap was defined as follows:

• Small Cap <$1BN
• Mid-Cap $1BN-$5BN
• Large Cap $5BN-$30BN
• Mega-Cap >$30BN