North America – a rich source of investors for Australian equities
It probably won’t come as a surprise to many that as at the end of 2014, 50 percent of the $US74 trillion of assets under management for the global fund management industry were controlled by entities in North America. A further, 52 percent of total US assets under management were allocated to equities. As at June 2015 almost 20 percent of US investment in equities was allocated to foreign equities. Furthermore, there has been a trend since 2013 of US equity mutual funds favouring investments in international rather than domestic equities.
When we look at the average institutional ownership of the S&P/ASX200, North American investors account for around 27 percent, being the most significant investor group after domestic investors. That figure may well grow larger in years to come: North American investors continue to invest overseas, with each of the past 10 quarters seeing positive net flows by US mutual funds into international equities. Specifically with regard to Australia, the relatively low level of the Australian dollar against the US dollar serves to boost the attractiveness of Australian equities for North American investors. Clearly there are many Australian companies that are already tapping into this rich source of investors but for those who aren’t an opportunity presents itself.
While it represents a great opportunity, successfully attracting and retaining the right institutional investors takes careful planning and the building of strong long term relationships with North American equity investors that can stand the test of time….and changing market conditions.
The North American institutional investor landscape is large, and it is therefore vital to focus on the approximately 175 institutions that account for over 90 percent of international equity investment. However they are well spread geographically, across both the US and Canada, and building relationships with North American investors can take years of effort and careful planning. Investor roadshows to North America can be arduous and time consuming, with extensive travel involved. A good starting point is a regular cycle of two visits by the CEO or CFO to New York and Boston each year, and an annual visit to Toronto is also recommended. This programme can be supplemented by attendance at conferences and further roadshow activity by the investor relations team.
Identifying those investors with a long term investment horizon is key, in order to make sure that you are talking to the right people, who will potentially buy and hold the stock, rather than trade in and out of the stock quickly. North American investors tend to focus on competitive position and long-term strategy rather than the most recent set of financial results, meaning that the timing of a North American roadshow need not be closely linked to a set of financial results.
To be successful in attracting and retaining North American investors requires the full support of the executive team and the board of directors, an investor relations team that has a clear and comprehensive plan in place and a commitment from all that building a North American shareholder base has long term benefits.
Alasdair Wight, a Director at KPMG Makinson Cowell in Sydney, is speaking on the topic of ‘North American Investor Relations’ at the AIRA (Australasian Investor Relations Association) conference in Sydney on 26 November.