Can 700,000 retail shareholders be wrong?

Criticised for being trigger-happy share traders, retail investors – including younger shareholders – are actually innately conservative and companies should take notice.

There is a growing interest in US stocks from Australian retail investors. Picture: AFP

“Make hay while the sun shines” may be a classic adage about seizing opportunities, but in investing, the inverse often rings true – fortunes are built in the rain. While we’re past peak economic uncertainty, true recovery feels uncertain with stubborn inflation and high interest rates holding firm.

A sluggish economy is not just a chance for companies to deploy capital wisely but also a critical time for them to be deliberate about engaging their register. Now is the moment for companies to evaluate and optimise their shareholder engagement. And a key shareholder group gaining more power is the retail investor.

Retail investors have traditionally been tarred as fickle and dividend-driven. However, activity on the Sharesies platform of more than 700,000 Australian and New Zealand investors is proving the opposite. Over half of the trades in the past 12 months have been auto-invest trades, suggesting they are not driven by speculative motives, but are consistent and committed, providing companies with long-term capital.

The notion that retail investors are only in it for the short-term gain is equally a myth. A recent survey showed more than a third of investors intend to hold their investments for more than 10 years. Younger generations are also one of the fastest-growing shareholder bases with long-term horizons. They are more likely to ride out market fluctuations and continue to invest when there are headwinds, dollar cost averaging their way through cycles.

New developments in technology have allowed for retail investors to more easily invest in overseas markets. While Australians have historically heavily invested in their own market on our platform, they’re increasingly turning their attention towards the US.

Having said that, the ASX is still the strong favourite – with more than double the number of investors trading on the ASX than in US markets as of November. The dollar value traded, however, reveals a shift. US trading on our platform accounted for 33 per cent of total traded dollars in January, but by November when the US election took place, this had risen to 51 per cent. Clearly Australian investors are eyeing up opportunities across the Pacific.

This growing interest in US stocks is also partly driven by the rapid rise of tech companies.

Technology is now the top sector for the platform’s retail investors, making up 28 per cent of total traded value over the past six months, fast followed by consumer cyclical sectors. These stocks require investors to take a long-term approach, reinvesting to support growth.

This new wave of retail investors is adding liquidity, diversity and resilience to the registers of companies and it’s time to pay closer attention. In comparison to their institutional counterparts, retail investors have the potential to become more than just shareholders: they’re likely to be customers or employees and have the ability to become powerful advocates for companies. But this isn’t a given.

Expectations for engagement from this shareholder group have changed rapidly, and storytelling is imperative for future-focused companies. Instead of sharing your ESG metrics, tell your register how your company has sustainability as a core value with practical applications and outcomes.

The ASX-listed business accounting software company Xero is a good example of this. It going the extra mile to engage retail investors across digital channels, with the CEO, Sukhinder Singh Cassidy, providing updates in plain English regarding the position of the company and how it’s delivering, making the engagement on a technical topic as inclusive as it can be.

In New Zealand, Infratil has taken a similar approach using in-person roadshows, social media, podcasts and YouTube.

I was excited to see that at a recent Australian Investor Relations Association conference, that companies are beginning to think creatively about engaging retail investors.

There’s a well-known quote that bond managers say: “The worst of loans are made in the best times”. If we think about the inverse of this, “the best of loans are made during the worst times”, it promotes the opportunity companies have to create long-term sticky and loyal relationships from a growing set of shareholders who are in it for the long haul. And that’s got to be worth the investment.

Susannah Batley is general manager of Sharesies Business.