In March of 2020, fearing the worst of the global Covid-19 pandemic, markets dropped to record lows and individual stocks in the travel and tourism space were decimated. However, Robinhood, E-Trade and TD Ameritrade realized record account openings in the second quarter as individuals began to participate in self-investing (Wall Street Journal, WSJ).
According to the WSJ in an August 31st article, “During the first six months of this year, individual investors accounted for 19.5% of the shares traded in the U.S. stock market, up from 14.9% last year, and nearly double the level from 2010…”
For CEO’s in the mining space and their investor relations (IR) teams, failure to acknowledge the retail shareholder’s impact now and in the future, could prove to be a critical oversight for a company’s longterm share price appreciation and overall health.
Over the past decade, there has been a noticeable increase in self-serve, online trading platforms that offer low or no fee trading. Online investor platforms like E*TRADE (Morgan Stanley), Schwab, Vanguard, TD Ameritrade and newcomer Robinhood allow individual investors a competitive advantage to manage their own investments.
“Lured by zero fees and probably boredom while stuck at home during the pandemic, retail investors have flocked to stocks. They now account for 20% of equity trading, making them the second-largest group of investors in the market” (Bloomberg).
While predominantly ignored, the Millennial and Generation Z markets make up the bulk of Robinhood’s 10 million users. Their base has grown in just three years from one million users with a zero-barrier to entry as the catalyst. Traders now refer to the “Robinhood effect” where irrational stock moves are realized by companies that directly tie to these two generations (Bloomberg, WSJ). To a lesser extent, the Canadian market is paralleling these results (Globe and Mail).
Robinhood is the new disrupter in the space and while it is too soon to tell their specific, long-term impact, one should assume that it will continue along these present trends. And, according to The Street in an August 2020 article, Robinhood users have been flocking to precious metals ETF’s such as GLD, SLV and IAU.
It would be a serious mistake for a modern resource company to ignore these current market trends. In the resource sector, retail has always been the lessor favored growth tactic by CEO’s and IR. Companies like Agnico Eagle and Barrick have historically directed a portion of their investor relations resources towards retail with favorable results. When PDAC added the Investors Forum several years ago, it acknowledged a shift in mindset for both the Canadian and the U.S. resource investor.
According to the National Investor Relations Institute (NIRI, U.S.), retail investors are constantly looking for opportunities to manage and invest in their own retirement and companies that recognize this can benefit in four primary ways:
1. Increased stock liquidity
2. Stability in long-term shareholder base as retail investors tend to hold longer
3. Voting support as this base tends to favor management
4. Company support as brand-loyalty may become an important factor
A recent NIRI survey showed some interesting trends amongst U.S. companies:
• 23% of respondents said they actively market to retail investors
• Between 14 and 20% of overall IR budget is spent on retail marketing
• 66% that do market to retail do not actively track that performance
• 38% track retail ownership against their peers and use that information to adjust strategy
Of those companies that actively communicate to retail shareholders, they identify the following tools used: press releases, annual reports, retail broker live meetings and retail broker conference calls. Factors like company performance, realization of corporate goals and institutional commentary from analysts are major catalysts to all ownership groups and that necessary information won’t change.
Economist and fund manager Bruce Goldfarb wrote in Forbes in June 2020: “Companies large and small now face the challenge of understanding who their owners are and how to engage them…Institutions still hold most of the shares and voting power, but retail owners can no longer simply be ignored or taken for granted.”
My personal experience in IR strategy was leading Tahoe Resources (NYSE: TAHO, TSX: THO. Since acquired by PAAS) from an 89% institutional holding (with 6% insiders) to a more balanced 70%: 30% ratio. Leading Rye Patch Gold’s IR, (TSX.v: RPM. Since acquired by ALO) we grew that retail into a 60%: 40% institution to retail split.
With both companies, my team was able to move those ratios through seven key marketing actions:
1. Directly engage retail shareholders through conferences, unique communications and social media
2. Engage with and encourage retail brokers through meetings, drop-ins and providing materials for their clients
3. Directly engaging retail newsletter writers and holding site visit events catered to that market
4. Monthly, informative newsletter specifically for retail investors (repackaging of existing information)
5. Participation in events that cater directly to retail shareholders, in-person or virtually
6. Shaping the company slide deck/presentation to address specific issues of importance to retail shareholders
7. Spending time addressing environment, social and governance (ESG) issues as well as corporate social responsibility (CSR) and community issues depending on the company’s jurisdictions
By allocating minimal resources towards the retail investors, a company can provide their shares with additional market support, build a devoted following and create loyal shareholders for the future.