Your base is informed, interested and cares about ESG
Understanding what drives retail investors is crucial for those companies looking to build a loyal and engaged relationship with them. These days, investing is both accessible and popular, and has created a lot of wealth. For example, the S&P 500 has consistently returned between 8 percent and 12 percent a year so even a small-ish investment of $10,000 in 1972 would be worth around $400,000 today.
Ian Selig is vice president of IR at US ground lease company Safehold. He points to a range of reasons why retail shareholders choose to invest in listed stocks: ‘Retail investors buy stocks to earn passive income through dividend payments, protect their money as a hedge against inflation and serve as a way to support and invest in their favorite companies.'
According to Jimeet Modi, founder of online discount broker Samco Securities, retail investors also 'have the advantage of being able to wait for the right market conditions before investing. They are not required to be fully invested at all times, which means they can sit out of the market during times of high volatility or uncertainty.
‘This sit-out power allows them to wait for the right opportunities to invest, which can result in higher returns over the long term.’
Andrea Wentscher is IR manager for retail investors at German chemicals company BASF. In her experience, retail investors are much more interested and informed these days, seeking a deeper understanding of the company they are investing in.
‘Their questions differ from those asked by institutional investors in the level of detail, not in the topics,’ she says. ‘They ask questions about the overall economic context and the company’s opportunities and risks, and they are less interested in quarterly figures than in the overall business strategy, which reflects the long-term horizon of their investment.’
In-depth engagementThis deeper level of engagement has also been experienced by Fraser Ramzan, head of investor relations at UK retailer Marks and Spencer (M&S). ‘Retail investors want to engage with companies, to share their views and vote on the issues that matter to them,’ he says. ‘Research by Lumi found that 92 percent of retail investors are interested in attending an AGM and the number one reason people attend AGMs is to ask questions – demonstrating the appetite for this group to talk to companies directly.’
Wentscher points to an example of this issues-led investment. ‘One topic that is becoming increasingly important to private investors is ESG,’ she points out.
‘Our shareholders want to understand how BASF can contribute to sustainable development and, specifically, to achieving climate-neutrality. We take this into account in our capital markets story – our growth projects and sustainability targets are key aspects of our presentation, in addition to the reporting on our latest figures.’
As with any investment, though, financial return is the name of the game and, according to Selig, retail investors enjoy the advantage of being able to play the long game and benefit from a different mindset regarding their trading strategies and stock portfolios, compared with their institutional investor counterparts.
In addition, tax expert Toby Mathis points out: ‘In most cases, retail investors make their income outside the financial markets, usually through employment or self-employment. This means market volatility will not impact the fixed income used to cover their living expenses, so the failure of one investment opportunity will not destroy their portfolio.
‘Despite the periodically smaller amounts of capital involved in retail investing, over time, these investments can snowball into an ample retirement account. This is why many retail investors leverage the guidance of financial services providers to put their cash into stable investment opportunities with long-term growth.’
[Retail investors] are less interested in quarterly figures than in the overall business strategy
Retail investors want to engage with companies, to share their views and vote on the issues that matter to them
