Investor Intelligence: The Rise of Retail

• By Andrew Gilmore, Director, Advisory Services

In the weeks following the March equity market sell-off there were a number of news articles describing how speculative retail investors have taken advantage of erratic swings in share prices. Indeed, declines in institutional ownership across the investor bases of quoted companies was commonplace during March and April, while the vacuum left from these outflows was filled by non-institutional money, which includes retail investors. Certainly, it is not uncommon for there to be spikes in retail investor activity during periods of heightened market volatility.

Nasdaq Corporate Solutions (“Nasdaq”) is in a unique position to analyse aggregate investor trends across its proprietary ownership database, both for institutional and non-institutional investors. Using a sample of large and mega-cap companies with market-caps amounting to $1.1 trillion, Nasdaq analysed retail ownership across these companies between June 2019 and June 2020 to see if there were any discernible trends. In this instance, retail was classified as any shares held directly on share registers or via retail banks or private client brokers. It did not include shares held by private wealth managers or investment funds that are marketed directly to the retail sector.

Data revealed that ownership from retail investors rose across the sample for each date analysed. However, this increase was most notable for the cyclical sectors such as Energy, Materials, Consumer Discretionary and Financials. For this group, average retail investor ownership jumped from 11.8% of shares in issue to 16.4% between December 2019 and June 2020. Meanwhile, increases in retail investment for defensives such as Healthcare, Technology, Telco and Consumer Staples was less significant. This indicates that there has been a wave of speculative retail money flowing into sectors where stocks were the most beaten-down during the March equity sell-off.

So what does this mean for Investor Relations teams?

• The trend is observable along sector lines. Whether your company is in a cyclical or defensive sector will likely determine whether this is an observable trend or not.
• It’s not just you. This is a common phenomenon during periods of heightened market volatility.
• It may return to normal. In the past, as markets have settled and institutional investor appetite returned, retail investor activity has tended to go back to normal levels.
• Inbound queries and requests from private wealth managers and private client brokers could increase as these entities observe heightened interest from their customers.
• Votes at general meetings may become more diluted. Retail investors are less likely to use their votes and so companies may have to work harder with a smaller pool of institutional investors, especially on more contentious resolutions.

For more information on how Nasdaq Corporate Solutions can help you to gain a better understanding of any changes to your retail investor base, please contact your local Nasdaq representative.

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