Category Archives: Investor Perceptions

Larry Fink (BlackRock) – letter to CEOs

Larry Fink, the founder and CEO of BlackRock has written his annual letter to the CEOs of the companies in which the world’s biggest institution owns shares.  In it he urges CEOs to consider the societal implications of their business decisions and to focus on their long-term plans.  “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

He highlights BlackRock’s responsibility to engage with companies because index investors have become the ultimate long-term investors and he reaffirms his belief that companies are overly focused on the short term.

He calls for companies to articulate their strategy for long-term growth and explain their strategic framework for long-term value creation. “This is a particularly critical moment for companies to explain their long-term plans to investors.”

The letter, available below in full, is well worth reading…


ISS 2011 Voting Results Report – Europe

Europe wide shareholder participation has increased over the previous four years with 2011 exhibiting the highest level of turnout recorded.

The overall level of dissent has remained static over the past four years, despite turbulence within European markets.

Europe wide turnout has increased over the previous four years with 2011 exhibiting the highest turnout recorded. This is partly due to the implementation of the EU Shareholder Rights Directive and the removal of barriers to voting, as well as the increasing interest in best practice codes that seek to encourage and enhance the benefits of more active engagement through such participation.

European voter turnout at shareholder meetings 2008-2011:

Source: ISS

European dissent by theme:


European Institutional Asset Management Survey

The 11th European Institutional Asset Management Survey (EIAMS), researched by Invesco, found that investors have increased their allocations to fixed income while reducing their equity exposure.  The 2011 survey received responses from 148 investors in 25 countries (mainly Benelux, UK, Ireland, France and the Nordics), with total assets under management of EUR 1,194 billion, or an average of EUR 8.1 billion.

For investor relations officers at public companies we believe the most interesting points are:

1 – European institutions invest most of their equity portfolios internationally while the bulk of their fixed income assets remain in their domestic markets.

2.- The flight to safety has continued with fixed income gaining more ground with investors, but last year’s freefall in equities appears to have been halted with just a small decline, and the sharp reduction in cash suggests that investors are less risk averse.

3. – Fixed income accounts for 58% of institutional portfolios’ assets, compared with 51% in the prior year.

4. – Fixed income looks to gain further ground with corporate bonds the big likely winner at the expense of government debt.  Indeed, 22% of investors are aiming to increase their fixed income component with 30% of investors increasing their exposure to corporate bonds and 31% reducing their government bond holdings.

5. – Allocations to equities have fallen slightly to 27%, down from 2009’s level of 29%, and well below the 32% average allocation reported in 2007.  UK & Ireland remain true to their traditionally high equities weightings, with shares creeping back up to 45% of portfolios this time after slipping to 44% in 2009, though they are still below the 55% weighting seen in 2007.

6. – A small net increase in equity investment is forecast and this is most likely to occur outside of domestic markets. 19% of respondents planned to boost their equity allocations against 15% who signaled an intention to sell.  More marked, though, is the likely swing away from domestic shares towards those in other European countries, the USA, Asia and other markets.  Only 11% of respondents planned to increase equities from their home market, while 21% intended to up the proportion of other European equities as well as those from Asia, while 20% planned to lift USA equity allocations and 23% aimed to boost their “other markets” stock holdings. Institutions are clearly turning away from home markets in equity and fixed income investment. Average domestic equity allocation has fallen to 18% of the total equity slice from 23.5%.

Click on the charts below for a full display.





Dividends are back

Aggregate dividents per share for S & P 500 companies

Aggregate dividents per share for S & P 500 companies

S&P 500 dividends per share, which hit a recent low in 2010, are forecast to grow at an annual rate of 9.8% over the next three years, driven by strong earnings and large cash reserves.

S & P 500 dividend actions - 12 months ended February

S & P 500 dividend actions - 12 months ended February

Year-over-year dividend increases are up 57.1%, while decreases and omissions are down 81.7% and 74.8%, respectively.


Peter Kaye – Dalton Strategic Partnership (DSP)

We see evidence for a continuation of the bull market in the US which can be found by looking at the strength in the US economy and US companies. While the headlines on poor housing data and a slowly recovering labour market seem to get the most air time, lead indicators for the US economy are telling a very different story. US companies are in great shape, for several quarters earnings estimates have surpassed expectations by a wide margin. We are now approaching the first quarter earnings season and the most recent releases from Accenture and Oracle imply the surprise trend is still intact and in addition, US corporate balance sheets are pristine. In addition to monetary expansion we have witnessed a rotation by investors out of other assets into equities which will provide fuel for the next stage of the bull market. A key driver for this will be valuation differences between assets. While there are clearly negatives such as the oil price, the level of the US dollar and the \\\’QE2 exit\\\’, we believe there remains much upside to the current US market

we maintain our bullish outlook on the North American equity sector and this seems to be backed up by strong flows into the sector, not only from US investors but also now here in the UK.


What will be the impact on IR of a move from Active to Passive?

Some say the move from Active to Passive investment strategies is inevitable because the cost/performance differential can’t be justified.

A recent survey by the IBM Institute for Business Value covering 2,750 investment industry executives, including those at endowments, foundations, and SWFs, predicts that passive investments will overtake actively managed funds.  Today 70% of global assets are in active funds, which charge 1.25% on average.  But over the next three years, 65% of respondents planned to move to passive strategies which charge less than 0.2%.  Extrapolating the data suggests that in 20 years, 85-90% of assets will be in passive strategies, with the remaining 10-15% in hedge funds, private equity and other alternative asset classes.

But just as the recent financial crisis has exposed the flaws in efficient-market hypothesis (EMH), so a move to more indexing could provide opportunities for active managers.


Talk of London-based hedge fund exodus to Switzerland is exaggerated

In our daily interactions with the Swiss investment community we see very little evidence of the arrival of London-based fund managers fleeing the UK to Switzerland so we don’t believe there will be much impact on the targeting efforts of IROs for the time being.

As Bill McIntosh of the Hedge Fund Journal points out in a recent article, as much as 90% of the European industry’s $300 billion plus in assets is managed, directly or indirectly, from London and it is likely to stay that way.  He explains that “There is a lot of talk, not too much action,” but points out that “anecdotal evidence suggests that many small-to-medium sized firms are also looking to enhance their operational flexibility.  One thing that is occurring, according to a leading prime broker, is that firms are exploring setting up a management company in a more tax efficient locale. This is seeing some funds set up a second leg in Switzerland but still keep London as the main operating centre. Though London is expected to be the top European financial services hub for the foreseeable future, hedge fund principals can decamp to build a second leg but still visit the UK weekly or fortnightly, thus escaping the clutches of the Inland Revenue.”

He goes on to point out that “Another spur for setting up a Swiss office is to take advantage of the light regulatory structure. At a time when regulatory upheaval is a certainty in both Europe and the US, the Swiss system’s use of referenda means that change, if it comes, will be slow. But it could be tricky to decamp completely from the UK in case the AIM directive puts heavy restrictions on non-EU funds. So it seems likely that firms will want to guard their EU regulatory optionality by keeping a London presence. Having dual offices thus gives a fund a regulatory toe-hold in each system.”

“Consultants and managers note that life style, too, is a key consideration. Firms that canvas their partners about moving abroad often find it difficult to convince wives and family to rip up their lifestyles and relationships. The Swiss Alps may be beautiful and have their fans, especially among partners with young families, but the cantons around Zurich can be tough socially for non-German speakers. And Zurich, whatever its charms, pales beside London as a cultural and entertainment centre.”

“Nor should it be forgotten that Switzerland is itself badly bruised from the credit crunch. Private bank customers in Geneva lost an estimated $7 billion in Madoff and many funds-of-funds in the city are still bleeding. The woes that have afflicted UBS have ensured that Zurich, too, has felt the pain. Moreover, capital is flowing out as tax amnesties in Italy and Germany encourage investors to bring money home.“

Talk of London-based hedge fund exodus to Switzerland is exaggerated.  Indeed, the fall of sterling against the euro and the Swiss franc even gives the UK a competitive cost advantage.