11 October 2022

Connecting to a new wave of retail investors

Tom Brown looks at how meme stocks, Robinhood and the pandemic are changing investor relations strategies and gives some tips to help reach out.

The rapid growth in the number of retail investors is spurring savvy US Investor Relations Officers (IROs) to experiment with new communications and outreach strategies.

In the past, retail investors were viewed as too demanding and too eclectic a group to merit a concerted outreach effort. But with their numbers on the rise, the impetus for attracting individuals to the shareholder roster is growing, too.

A 20^th May, 2021, article in the Harvard Business Review titled ‘The Changing Role of the Investor Relations Officer’ listed four major ways the IR position has altered, one of which is the need for ‘cultivating the right investors.’ The article says: ‘The best IROs will know how to find the right investors for the company and proactively cultivate them and try to get them on board.’ Doing so could hinge on tapping into the new cadre of retail investors.

New retail investor mindset

Retail investors look considerably different to American IROs after January 2021, when a group of individuals on Reddit banded together to coordinate an attack on hedge funds shorting GameStop and AMC Entertainment. These stocks, which became known as ‘meme stocks’, appreciated with dizzying speed in a matter of days.

Even without the meme-stock phenomenon, the volume of retail investors was already making an impact. Retail investors now account for around 25 percent of the total trading volume in US equities, according to BNY Mellon. This is up from 20 percent in 2020 and 10-15 percent a decade earlier. And in fact, around 15 percent of retail investors got their start in 2020.

There are a number of developments fueling this trend. First, the pandemic meant that younger people had the time and dollars (thanks to stimulus cheques) to experiment with trading during lockdown. Next, zero-commission platforms like Robinhood made the investment world much easier for DIYers to join. Some mobile trading apps even began selling fractional shares, tearing down another longstanding barrier to entry.

Tips for improving outreach

The rise of retail investors can prove challenging for IROs because this audience possesses widely varying levels of sophistication. Here are a few ideas for cultivating the retail investor:

Use your IR site to the fullest
While institutional investors have access to a wealth of sophisticated tools, retail visitors tend to turn to your IR site for bread-and-butter corporate information. Be sure to include ESG information (more below) and make it easy-to-connect by providing contact information and email alerts.
Diversify your public appearances
Tailoring conference attendance to events aimed at retail investors makes good sense. In a spring 2021 National Investor Relations Institute (Niri) white paper ‘Retail IR for Smaller-Cap Companies,’ the authors list Planet Microcap, Investor Summit, LG Micro, and OTC Virtual Conferences as events worth exploring. Another way to broaden your participation is to investigate events that your peers attend and you don’t.
Add more ESG content
Retail investors are concerned about ESG topics. In a late 2021 study conducted by RIA (the Responsible Investment Association), 85 per cent of Canadian retail investors expressed concern about climate change and the environment.
Communicate to newcomers and pros alike
In a 2022 article in the Canadian Investor Relations Institute’s IR Leader, Equinox Gold’s VP of IR Rhylin Bailie said that she webcasts AGMs and quarterly calls without screening participants’ questions beforehand. Throwing open the floor to everyone can make an IRO’s job more stressful, but the policy has the potential to pay off by encouraging all investors, retail and institutional alike, to participate.
Consider communicating with ‘finfluencers’
Many IROs complain that the retail audience is hard to reach because it’s so fragmented. One solution is to cultivate ‘finfluencers,’ or financial influencers using social media channels to reach anywhere from a few hundred to tens of thousands of followers. Finfluencers are found on a number of platforms like Reddit, StockTwits, and TikTok, to name just a few.
Provide education
In a recent study of retail investors’ generational habits, Nasdaq found that younger investors spend more time checking their portfolios and researching investment opportunities than other age groups. In fact, 48 percent of Gen Z investors check their portfolios several times a day, while only 10 percent of Baby Boomers do the same. That’s why companies trying to cultivate a younger, retail demographic can benefit from providing more research and in-app educational materials.