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Buyside Breakdown Part 1: Retail Investors

Buyside Breakdown | A 4-part series

Buyside Breakdown examines four types of investors, their influence on listed companies, and tactics to target them. In conjunction with our earlier series Leaving a Trail for Investors to Find You, listed companies have a comprehensive set of resources to better understand and attract investors.

  • Part 1: Retail Investors
  • Part 2: Exchange Traded Funds
  • Part 3: Family Offices
  • Part 4: Pension and Sovereign

Part 1: Retail Investors

Retail investors are expected to account for over 61% of global assets1 under management by 2030. As the face of the retail investor changes due to demographics, and as new technologies and platforms emerge, public company executives will need to adapt their approach to engaging with this important investor class.

Why Retail Investors Matter

Significant (and Growing) Buying Power

Retail investors are expected to account for over 61% of global assets under management by 20307. In addition, retail investors include the Gen Z population, who are reputed to hold considerable consumer power through "The Great Wealth Transfer".8 According to a McKinsey & Company study9, this generation searches for the truth, a signal to companies to ensure they are transparent in their communications and deliver on their promises.

Impact

The retail investor segment has also driven an increase in impact investing10, especially by younger investors. This reinforces the need for companies to illustrate a connection between corporate profits and corporate purpose to appeal to this investing philosophy.

Influence

Social media forums allow individuals to deepen networking and wield influence among other retail investors. As witnessed in the recent past, some forums were used by retail investors to discuss trading strategies in order to create trade momentum in select securities. Single stock retail activism through trading has introduced the concept of a "meme" stock, one that has "gained viral popularity due to heightened social sentiment"11.

In addition to forums, there is growing viewership of TikTok videos using #fintok and #stocktok that is used to relay messages about stock picking experiences to investment education12.

Growing Accessibility

Retail investors primarily use online brokers, however the market has witnessed significant growth in the adoption of robo-advisor accounts and mobile trading applications by this segment. These newer platforms and accounts allow retail investors to take advantage of lower (or commission-free) transactions fees, easier payment methods, real time data access, gamification, and access to fractional ownership of securities. Greater accessibility and competitive fees have lowered the barriers for young investors to trade in the equity markets.

How to Identify Retail Shareholders

Companies often find it difficult to identify the actual retail holders of their stock. In rare cases where a retail shareholder elects to be a"non-objecting beneficial owner" (NOBO), a company can access information about such shareholder by requesting a NOBO list from the company's transfer agent. Unfortunately, most retail investors instead elect to be "objecting beneficial owners" (OBO) which prohibits a financial intermediary from sharing information with the issuer.

To help address this challenge, the TMX Investor Solutions team recommends that issuers build relationships with key brokers, financial counsellors, and private equity firms that recommend investment in their stock. These relationships can be used by the issuer to indirectly build influence among OBO shareholders on voting matters, or to better understand retail holdings.

How to Engage and Target Retail Investors

Building A Target and Pick the Right Channels.

With the decline of sell-side research, companies have increased direct targeting of retail investors via tactics such as organizing non-deal roadshows or participating in retail investor events. Conducting retail earnings calls or hosting online ask-me-anything (AMA) sessions with executives may be additional ways to provide these shareholders with a better understanding of a company and for the company to understand the concerns from retail investors.

Social media is a key channel for corporations to broadly reach potential retail investors. The various social media platforms have different benefits as well as limitations, so it is wise to create a social media policy that aligns with relevant exchange disclosure policies and consult with media experts before engaging through these channels.

Through these direct activities, it is essential that companies build a list of existing or potential retail investors - social media followers, influencers and retweeters, and contacts from conferences and roadshows.

Another source is website visitors: gating access to investor relations material through a contact form, or collecting subscription details for corporate news are two common tactics for generating retail lead sources.

Words (and Truth) Matter.

It is important for companies to connect with retail investors by using language that is not misleading but approachable and simple for non-industry experts. Corporate content should be easy to digest for retail investors (e.g., make use of infographics, pictures, and videos) and should be shared across key channels (e.g., website, traditional media, social media) that retail investors access.

In addition, artificial intelligence and machine learning used by robo-investing highlight the importance of ensuring the accuracy of news, online/social media sentiment, and the signals being produced by a company's trading patterns. It is therefore critical for companies to keep a pulse on what is being said on investment forums (and by whom) and possibly adjust communications or respond to incorrect information in accordance with internal and external disclosure policies.

Who Are You?

A corporate identity is critical. While your brand is your product, your identity tells the audience more about the company and your corporate purpose explains the role of the company in a grander sense. These elements are important to retail investors who seek transparency and truth. Reporting on environmental, social and governance topics are also becoming table stakes for corporations to help connect with potential investors, customers, employees and other stakeholders.

TMX Support

  • Join investor events - TMX Connects are events that expose our listed companies to a retail broker audience. Additionally we sponsor and run our own investor days throughout the year. More about these events can be found on our Corporate Access webpage.
  • Leverage profile opportunities - TMX offers our issuers the chance to participate in our View from the C Suite videos and articles, market open/close celebrations, and in our Instagram series, Behind the Ticker Wednesdays (@tsxtsxv). Contact your designated Regional Advisor to learn more about these opportunities.
  • Reach more retail - Leverage the TMXMoney website where over 1.5 million monthly retail investor visitors could be learning more about your company if you enhance your quote page with investor relations material - add investor kits, ESG reports or corporate videos
  • Access retail ownership intelligence - Use TSX InfoSuite to get an estimate of retail investors and institutional holdings where adequate information is available from public sources. For deeper analysis of holding, S&P Global offers enhanced shareholder and IR Solutions. Additionally TSX Trust can assist companies with the identification of shareholders through the TMX Investor Solutions division. This group can also identify brokers who recommend investment in an issuer's security through proprietary research and calling campaigns.
  • Identify yourself - Use your company's Listed On Logo for marketing materials, website, business cards and conference booths to ensure retail investors know how to trade or track your security. Also review our FAQ regarding US retail investors to make sure you know how to respond to inbound questions from American investors.
  • Review educational resources - Our Learning Academy has a number of resources that can help with company narratives, such as our Digital Influence podcast and Socializing your ESG video.
  • Leave a Trail for Investors - The 6-part series, Leaving a Trail for Investors to Find You, companies can find tactics for effective targeting, for excellence in investor material preparation, website must-haves, and best practices for investor content creation. This series also provides tips on investor meetings.
  • Enhance retail services - TSX Trust also provides services to manage retail shareholders concerns through its TMX Investor Services team.

Footnotes:

  1. The Institutional Share of Global Capital is Shrinking. What Does This Mean for Managers?, Institutional Investor LLC, Jessica Hamlin, March 10, 2022, https://www.institutionalinvestor.com/article/2bstmxkxtc18sjq0b0zr4/portfolio/the-institutional-share-of-global-capital-is-shrinking-what-does-this-mean-for-managers.

  2. Ibid

  3. McKenzie, John (February 9, 2021). TMX Group Limited Q4 2020 Results Conference Call [Speech transcript].
    https://seekingalpha.com/article/4404668-tmx-group-limited-tmxxf-ceo-john-mckenzie-on-q4-2020-results-earnings-call-transcript.

  4. Canada Wealth Management – Market Sizing and Opportunities to 2025, GlobalData, July 30, 2021,
    https://www.globaldata.com/store/report/canada-wealth-management-market-analysis/#:~:text=The%20Canadian%20resident%20retail%20savings,the%20forecast%20period%202021%2D2025.

  5. More than half of Canadians plan to own shares by year-end, Wealth Professional, Steve Randall, September 3, 2021,
    https://www.wealthprofessional.ca/news/industry-news/more-than-half-of-canadians-plan-to-own-shares-by-year-end/359479#:~:text=The%20figures%20from%20Finder's%20Global,%2C%20South%20Africa%2C%20and%20Mexico.

  6. Canada Wealth Management – Market Sizing and Opportunities to 2025, GlobalData, July 30, 2021,
    https://www.globaldata.com/store/report/canada-wealth-management-market-analysis/#:~:text=The%20Canadian%20resident%20retail%20savings,the%20forecast%20period%202021%2D2025.

  7. The Institutional Share of Global Capital is Shrinking. What Does This Mean for Managers?, Institutional Investor LLC, Jessica Hamlin, March 10, 2022, https://www.institutionalinvestor.com/article/2bstmxkxtc18sjq0b0zr4/portfolio/the-institutional-share-of-global-capital-is-shrinking-what-does-this-mean-for-managers.

  8. Unravelling the Great Wealth Transfer, Wealth Professional, Jasmina Hazuria, August 21, 2023,
    https://www.wealthprofessional.ca/news/opinion/unravelling-the-great-wealth-transfer/378896.

  9. Excerpted from "'True Gen': Generation Z and its implications for companies", November, 2018, McKinsey & Company,
    www.mckinsey.com.
    Copyright (c) 2023 McKinsey & Company. All rights reserved. Reprinted by permission.

  10. Advisors must collaborate with clients on impact investing, finds survey, Wealth Professional, Leo Almazora, June 26, 2019, https://www.wealthprofessional.ca/investments/socially-responsible-investing/advisors-must-collaborate-with-clients-on-impact-investing-finds-survey/266752.

  11. What Are Meme Stocks, and Are They Real Investments?, Investopedia, Paige McLaughlin, September 12, 2022,
    https://www.investopedia.com/meme-stock-5206762.

  12. Welcome to FinTok, Where Day Trading, Options Investing, and Misinformation Reign, Institutional Investor LLC, Alicia McElhaney, September 25, 2020, https://www.institutionalinvestor.com/article/2bswzjicuhf5oapu1o074/culture/welcome-to-fintok-where-day-trading-options-investing-and-misinformation-reign.

Copyright © 2023 TSX Inc. All rights reserved. Do not copy, distribute, sell or modify this document without TSX Inc.'s prior written consent. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this article, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This article is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. The Future is Yours to See., TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX and Voir le futur. Réaliser l'avenir. are the trademarks of TSX Inc.

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