In 2006 two Yale academics (Cremers, M. and Petajisto) introduced the term Active Share as a measure of active portfolio management.  The term measures the degree of overlap in holdings at the stock level between the fund manager and their benchmark index.  An Active Share of 100% implies zero overlap with the benchmark while a pure index fund will have an Active Share of 0%.

Unfortunately, as shown in the chart below, Active Share has been declining over time which means that many funds are increasingly mirroring their index.  This is due to the increased use of passive investment techniques but also because of the widespread use of benchmarks by active managers.  The rise of these “Closet Indexers” is an issue for IROs when considering which investors to target.  This is especially important as many so-called “Active” fund managers may actually be “Closet Indexers” who will typically only overweight or underweight their positions very slightly.

Spending valuable management time with a “Closet Indexer” will have little impact on marginal additional purchases of stock.  Therefore, it is clearly very important for IROs to be able to identify the stock pickers with concentrated portfolios in order to achieve the most from their meetings.

A great deal has changed in the IR world over the last 15 years but we were surprised how much remains the same when our long-time client Mark Steinkrauss stumbled over an article from 1991 discussing European IR for U.S. companies.  The article (see below) highlights the difficultly in indentifying shareholders beyond the meager public filing information and the lack of European sell-side research coverage of U.S. stocks.  Interestingly enough, our biennial European Stock ID survey, according to the article, only identified around 50 UK and European funds holding U.S. stocks in those days.

Today we often identify more than 400 institutional holders of U.S. stocks in our biennial surveys, and it’s not unusual to find 10 – 15% of a company’s capital held by European investors. The one other major change has been the distribution of materials which was by post or fax in those pre-internet days.  Although the European single market has developed considerably, for IROs it remains a series of separate markets in many ways.

The article can be found here.

(Belga) – Une étude récente de la Société Générale révèle que les actions du New York Stock Exchange (NYSE) restent en moyenne neuf mois dans le portefeuille d’un investisseur. Dans les années ’40, le laps de temps moyen était encore de 10 ans.

A la bourse de Bruxelles également, les investisseurs ne semblent plus être si confiants. Vingt ans auparavant, les actions belges restaient dans un portefeuille cinq ans en moyenne. En 1999, cette moyenne était tombée jusqu’à 20 mois. Depuis, la durée se situe, pour les plus grosses actions, aux alentours des 1,5 et 3 ans.

Les actions de l’indice Bel 20 changent tous les 17 mois de propriétaire. Ce chiffre est fortement marqué par le véhicule boursier d’Albert Frère, NPM, qui reste en moyenne plus de cinq ans dans les portefeuilles. Si NPM n’est pas repris dans ces statistiques, la moyenne pour le Bel 20 tombe à 14 mois, un record.

Selon le quotidien économique, la crise joue ici un rôle important. Le démantèlement de Fortis a plongé les investisseurs dans une nervosité extrême. Bon nombre de vendeurs en panique se sont ainsi retrouvés face à une multitude de spéculateurs opportunistes. En outre, les fonds spéculatifs jouaient il y a plusieurs dizaines d’années un rôle beaucoup plus limité en bourse.

While meeting with investors in Paris this week, several raised the question whether the U.S. stimulus is working yet.  Most corporations are certainly not yet seeing any direct benefits and the worry on investor minds is that the markets are getting way ahead of reality because the stimulus is only going to start trickling down to companies next year and the real impact on corporate earnings will not show up until 2011-2012.

I’ve just come out of a session about the changing role of the sell-side and must say how surprised I was to hear so much bashing of the sell-side.  Clearly their business model is under a lot of pressure given the current environment but the sentiment in this very well attended session (standing room only) seemed to be against using the sell-side to facilitate corporate access because they no longer do a good job, don’t deliver the right investors and can’t get good feedback from PMs.  One of the speakers from the buy-side said they never tell the sell-side what they think about meetings.  One IRO stood up at the end of the session and said he was completely confused by the whole situation.  Strangely enough, the session next door on corporate social responsibility was not as well attended as it probably should have been.  What does this tell you about the issues most on everyone’s minds?

I’ve just finished my session on international outreach.  It was well attended and there were some good questions which showed people have a good grasp of targeting Europe.  I was lucky enough to have two great co-speakers in Bina Thompson of Colgate-Palmolive and Jeff Smith of FedEx, both of whom have a lot of experience in Europe.  If you missed the session and are interested in the presentation, you can access a copy of the slides as well as an audio recording by clicking on this link:  http://www.niristream.org/c/b.cgi?s=MKT2