Advisory Intelligence: Investors Feeling More Empowered to Make Longer-Term Decisions
Following second quarter results, investors now have improved visibility on the impact of COVID-19 and are starting to make significant decisions on their investment allocations, according to the Nasdaq Global Perception team.
In this environment, companies need to clearly communicate around the topics investors are most focused on, such as business model durability, consumer and workforce dynamics, ESG agendas, debt obligations, and capital allocation strategies, says Foli Pontillo, global head of perception at Nasdaq IR Intelligence.
"Companies have started to firm up their messaging a bit more relative to the fairly ambiguous language used in the first quarter," says Pontillo. "The buy side feels more empowered to make longer-term decisions across their portfolios."
Investor Focus Areas
While investors are placing more focus on the long-term picture, investors continue to assess near-term efforts to boost liquidity and preserve the balance sheet, notes Pontillo.
Companies need to "tie what’s happening in the near-term to longer-term implications," she says. "We've seen companies announcing strategic pivots, restructurings, and M&A. Based on what we've heard from the buy side, they expect to see companies continue to undertake corporate actions to strengthen the long-term business trajectory through the end of the year."
Along with the evolution of the business model, investors are also keen to have in-depth conversations around ESG policies and practices, particularly related to governance, human capital management, and the supply chain, says Pontillo. "On the human capital management front, investors cited employee retention, employee health and safety, and a focus on employee engagement and corporate culture in this remote environment as critical factors," she says. "The buy side is really leaning on companies to provide as much insight as possible in terms of impacts – near, intermediate and longer term."
When it comes to capital allocation, investors are calling for more clarity from companies on what they plan to do with any funds previously earmarked for dividends or buybacks. In fact, according to Nasdaq’s management performance metrics, some companies have seen their credibility ratings severely impacted by communications on this topic. To that end, in Nasdaq’s research, organic and inorganic deployment activities aimed explicitly at strengthening the sustainability of the business have been well-received by investors.
Alongside its perception studies, Nasdaq conducts regular surveys of the buy side to tap into changing market sentiment. A recent poll, surveying investors with several trillion in equity assets under management collectively, finds that the vast majority of investors are actively initiating new stakes – highlighting the opportunities available to investor relations teams who want to target new funds.
Pontillo warns, however, that while many companies are experiencing an uptick in interactions with prospective shareholders, companies need to be keenly aware of which investors best align with their long-term investment proposition when deciding how to allocate time.
Another consequence of the pandemic is that investors are pushing for greater access to management beyond the C-suite. Pre-pandemic, the buy side would get occasional access to operational managers at events like investor days or site visits. But, given the pressure companies are under, investment firms want to speak with leaders who are "closer to the field" of play, says Pontillo.
"To have more conviction in the viability of the business, it's really important for investors to have exposure to members of the management team who are handling day-to-day operations," she says.
Another shift resulting from the crisis is a move towards more direct communications between companies and investors. In Nasdaq’s recent survey, unanimously, buy-side respondents say they are open to direct outreach from issuers. In the virtual environment, investors have appreciated that companies are being proactive and reaching out directly, says Pontillo.
"Investors say accessibility with many corporates has been better than ever," she says. "Though, they definitely miss the in-person interaction – there's just a certain level of comfort that you get from having that face-to-face conversation."
Summing up, Pontillo says that, amid the unprecedented uncertainty of the COVID-19 pandemic, IR teams need to focus on what they can control: their approach to investor engagement and communications. That way, companies are best positioned to capture the attention of investors at a critical moment.
"The headline is that there is a unique opportunity for companies that are able to message in a compelling and credible way – in a way that gives investors comfort that they are making the best decisions and attuned to the interests of a broad range of stakeholders."