Our Blog: The Podium

By Dennis Walsh, Vice President

“Buy-side analysts truly value a company with a responsive investor relations program led by an informed IRO,” shares John Barr, Co-Manager of the Needham Growth Fund (NEEGX) and Manager of the Needham Aggressive Growth Fund (NEAGX).

Most strategic investor relations programs aim to increase institutional ownership with new long-term shareholders. But anyone who has ever worked in IR knows this is often easier said than done. Targeting quality potential investors and conducting outreach can be a major undertaking. Understanding the buy-side’s investment process for identifying long-term holdings is essential to your success. So what are the key elements of a typical buy-side’s stock picking process? At Needham, Barr’s research team sources ideas from a number of methods, including quantitative screens based on various financial metrics, reading trade publications, and talking to people such as buy-side colleagues. Barr says, “If your stock happens to be on our idea list and you call looking for a meeting then we’ll do it. If it’s not on our list, it’s unlikely that we will take a meeting.”

How can IR contribute? Needham analysts like to conduct their own research – it gives them an opportunity to develop their own point of view – so being undercovered by the sell-side is not always a negative. If your company is being considered as a new investment idea for a firm like Needham, a best-in-class IR program can support the due diligence process from start to finish. Consider these insider tips from Barr to help IROs better support the buy-side’s investment process.

By Dennis Walsh, Vice President

I recently was interviewed for an article for IR Magazine titled, “Sell-Side Analysts: The Many and the Few.” The article discussed how some companies manage a full roster of covering sell-siders, while others struggle to maintain or attract just a few. In today’s market, it seems more common that IROs are in the latter situation and are frustrated by the limited return on their efforts to attract coverage.

There are many factors that contribute to the lack of adequate sell-side coverage, and all of these factors relate to the sell-side’s inability to make money by working with a particular company. Low trading volume plagues companies vying for attention from both the buy- and sell-side. The buy-side avoids low-volume stocks because they cannot easily get out of the stock, and the sell-side won’t cover a stock because the lack of buy-side interest limits their ability to generate trading commissions. It’s a vicious cycle. In addition, the lack of investment banking business may create a barrier to coverage. The bottom line is that the bank needs to make money in some way from the research coverage since they are not being compensated from the buy-side in hard dollars.

By Dennis Walsh, Senior Consultant & Director of Social Media

In many of the StreetScope® perception audits we conduct, we often inquire about what makes a successful investor relations program. Is the Street satisfied with the level of outreach? Is there something specifically a firm can do to enhance its communications? Being the investor relations enthusiast that I am, I’m always hoping to discover an innovative idea that we have yet to implement.

However, more often than not, the responses are all pretty simple. Wall Street wants access to management. They want informative answers to their questions. Many even want an investor day that describes the company’s long-term growth strategy. So old-fashioned (I jest)! What about having an active Twitter/StockTwits account (follow me) or Facebook page, a cool management video or an interactive annual report?

“View from the C-Suite: What Management Wants from Investor Relations” was the theme for NIRI Boston’s April event. For a chance to listen to a panel of C-level executives speak candidly to a room full of investor relations professionals, I quickly reserved a car and “zipped” over to the meeting. The panel featured three esteemed executives from the region, including Richard F. Pops, Chairman, President & Chief Executive Officer, Alkermes; David D.R. Hargreaves, Chief Operating Officer, Hasbro and Donald Muir, Chief Financial Officer, Lionbridge.

The audience was eager to hear what these top executives expect from a strong IR team. The panel consistently reinforced that IR professionals are most effective when they are knowledgeable, well organized, involved in strategic planning, and are able to stand up to management to ensure best practice.

The term “shareholder activism” can sometimes send a shiver down your spine and conjure up all kinds of unwelcome events – unhappy shareholders, proxy contests, shareholder proposals, 13D filings and withhold vote campaigns, to name just a few.

I recently moderated a NIRI Virtual Chapter webinar on “Shareholder Activism Trends.” The participants, consisting mainly of IROs at mid- and small-cap companies, were polled on several questions. The first question was, “Do you have a detailed plan in place for dealing with shareholder activism?” The majority answered “no.”

It may not be feasible to have a detailed plan for dealing with a threat that can take so many different forms. The lawmen and bandits who fought it out at the infamous O.K. Corral in 1881 had no idea how the showdown would play out – and neither will you if your company becomes an activist’s target. But that doesn’t mean you can’t be prepared. Here are four steps.

Did you ever wonder who is sitting across the table from you at investor meetings? Would you be surprised to know that hedge fund investors could be sitting right along-side traditional long-only investors? In today’s complex and competitive investment environment where institutional asset managers are increasingly scrutinized for seemingly unoriginal products with excessively high fees and lackluster performance, product managers are looking for unique ways to differentiate themselves, re-craft existing products, and drive additional business. One way to accomplish this is to offer a 130/30 strategy. With this type of product, $100 million worth of equities is initially purchased for a portfolio. Meanwhile, $30 million worth of equities is borrowed from a market maker and sold or “shorted” and the proceeds added to the original $100 million portfolio, thus yielding a $130 million net long and $30 million net short or 130/30 portfolio. The strategy is designed to double up on the best long investments expected to appreciate in price with proceeds from short securities expected to fall in price.

I recently had the opportunity to speak with Chris Lahiji, Founder and President of LD MICRO, a by-invitation only newsletter firm that focuses on finding undervalued companies in the micro-cap space and providing research for its clients. Since 2002, the firm has published an annual list of recommended stocks as well as comprehensive reports on select names throughout the year. We touched on a variety of topics from corporate access, annual reports and even the future of sell-side coverage. Chris’ unfiltered views on these subjects are refreshing and insightful for any investor relations practitioner.