Financial market volatility created by the COVID-19 pandemic has caused around two-thirds of retail investors to change their investment strategies, the Quoted Companies Alliance has found in a survey conducted by YouGov. Investors reviewed their portfolios with a view to either reducing risk by switching to larger companies or holding more cash – or by taking advantage of lower share prices to invest more.
The crisis is also accelerating a move amongst retail investors to back companies with strong ESG (Environmental, Social and Corporate Governance) credentials – those making a positive contribution socially and environmentally. This development is motivated by both a wish to use their capital to support things they believe in, and the prospect of better long-term returns.
The survey found that UK retail investors are typically resilient and in it for the long-term, taking a measured approach. Retail investors tend to get their market information from sources they can access digitally, such as news and company websites.
COVID is changing the way people think about investing
Two-thirds of retail investors have changed their investment strategies as a result of the impact of the COVID crisis on the economy. A quarter of retail investors have seen a decrease in liquidity in smaller company stocks since the failure of the Woodford Investment Management funds.
Only 5% of retail investors think corporate governance has no impact on share price. It is viewed as having a positive influence on company management and resulting performance.
“The results of this survey are encouraging in the light of increasing retail participation in UK equity markets and the potential of the retail investor should not be underestimated,” explained Tim Ward, Chief Executive of the Quoted Company Alliance. “From a company’s point of view, retail investors show positive traits, including investing for the long-term rather than day-trading, investing in SMEs and UK companies, doing their research and being sanguine about volatility.”
Many retail investors are driven to invest in companies that are making a positive contribution socially and environmentally. The COVID-19 crisis is accelerating the ESG trend that was already in motion.
The retail investor community is an important provider of liquidity and finance for companies. In the same way as companies profile their institutional shareholders, so they should understand the type of retail investor that wants to share in the future success of the UK’s growth companies. To ignore this source is to turn off a major reservoir of liquidity.
“Accessing and engaging the retail investor is full of complexities. Unlike the institutional investor, the retail investor is hard to access and often invisible, hidden behind the nominee accounts of the growing number of online share dealing platforms and wealth managers,” added Marc Downes, CEO of Investor Meet Company. “Engaging therefore becomes time consuming, inefficient and problematic, which, as a consequence, drives the corporate focus of engagement onto the larger funds and institutions. It is time to reset the broken model of shareholder engagement and deliver investor engagement with outcomes that benefit both companies and investors alike.”