THIS ARTICLE IS PART OF EQ'S SHAREHOLDER VOICE REPORT. FIND OUT MORE HERE.
Meet Tomorrow’s Shareholder
Younger shareholders are now standing toe-to-toe with older generations of investors and could be set to surpass them in both size and influence.
EQ’s Shareholder Voice survey sample revealed that 50% of all shareholders in the UK and US are aged between 18 and 40, and 18% are between 18 and 24 — the so-called Generation Z.
Gen Z currently comprises 20% of the population and are poised to become the “most disruptive generation ever”, with the economic firepower to back their convictions, according to research from Bank of America.
By 2030 they will account for over a quarter of global income and their earnings will eclipse those of millennials, who are between 25 and 40 years old.
This surge of youthful shareowners could be a boon for public companies but is not without its challenges. First, corporate executives need to fundamentally change their perception of retail investors, says Sheryl Cuisia, managing director and founder at Boudicca from EQ and incoming Chair of the UK Individual Shareholder Society (ShareSoc).
“In the US in particular, as well as Scandinavia, individual shareholders are starting to be perceived as young, cool and relevant,” she says. “In the UK, where there is a track record of retired gentlemen hobbyists taking up investing, we are also seeing an increased diversification of individuals.
“With the ready availability of online trading platforms and the rise of cryptocurrency, it is no wonder younger generations are taking an interest. This was exemplified by what we saw with the Wall Street Reddit traders earlier in the year.
“Also, more women are getting into investing. The increased diversity and inclusivity of the individual shareholder community, something ShareSoc strongly advocates, is a factor in the changing perception of UK individual shareholders.
“Individual shareholders have much to contribute to companies and society. Because they are singular, they struggle to be heard. But companies are realising there are millions of them, and they will collaborate more.”
Nathan Long, the senior analyst at investment platform Hargreaves Lansdown, says: “As younger retail investors engage more with their finances, their understanding of how companies work and perform will grow. This could be hugely beneficial for companies, particularly those that are consumer-facing and can build brand loyalty through share ownership.”
This echoes the findings of EQ’s survey, which shows that 37% of Gen Z investors in the US say being a consumer is a top-three reason for buying a company’s shares — the highest percentage of any generation.
of Gen Z shareholders in both the US and UK either vote or intend to vote in AGMs
Shareholder Voice 2021
of Gen Z factor ESG investing into their financial decisions
Bank of America, 2020
Some companies question whether it is worth engaging with young individual investors if they only buy and sell shares to make a quick buck. But this is a misconception.
The rise of trading platforms such as Robinhood in the US has helped younger people access shares more easily, including those that trade frequently. But EQ’s research shows 80% of Gen Z shareholders have already voted in AGMs – the highest of any generation. Furthermore, another 9% says they would like to have their say at AGMs. This suggests most are committed, long-term investors.
Some commentators suggest younger investors are less concerned about share price but are more likely to base their investment decisions on narratives and themes from Twitter feeds, Reddit threads and streaming news.
However, Motley Fool research suggests historical stability and investment researcher ratings are the biggest influence on Gen Z shareholder decisions, while social media and influencers are the least important.
In any case, there is an opportunity to engage with younger investors who do follow stories and themes. Building narratives in digital channels can gain shareholder engagement with a corporate’s journey.
“Financial metrics are important,” says Charlie Walker, head of equity and fixed income primary markets at the London Stock Exchange. “Increasingly we are also seeing investors willing to support longer-term missions, whether it’s helping the transition to a green economy or building new disruptive technologies.
“In some cases, this is requiring investors to look to longer-term financial metrics and KPIs. This is also apparent in some prospectuses with the language being more emotive and mission-driven.”
“Themes and narratives do influence certain retail investors,” adds Long of Hargreaves Lansdown. “But many are savvy and look at fundamentals. Rather than focusing on narrative to attract investors at the point of results, building a loyal retail investor base with a long-term investment narrative linked to the company brand may be more effective.”
EQ’s research shows that 70% of Gen Z investors and 78% of millennials in the UK are interested in investing in more IPOs. Companies would do well to grab that opportunity.
The opportunity to build loyalty with young retail investors often starts with your initial public offering. Long says it is surprising that most companies planning an IPO do not have a retail component at the point of listing and only offer shares to institutional investors.
“Including retail investors at flotation is an excellent way to start with a loyal investor base,” he says. “It is also crucial to then keep them front and centre of any decisions on communications and secondary funding.”
Many hold cash, waiting for opportunities, says Long. “They then tend to hold shares for a prolonged period rather than dumping them on day one of trading. If you do offer to retail investors on IPO, draft prospectuses clearly and without jargon to appeal to people outside investment banks or asset managers.
“For too long, information about companies, including in annual reports and prospectuses, has been written for institutional investors, making it impenetrable to ordinary people. This will require a big shift in approach but is necessary to satisfy the new generation.”
Walker, of the London Stock Exchange, says: “Companies can broadcast much more widely than before — for example, using virtual AGMs and digital aspects in IPO roadshows. This helps them find different pockets of investors than they could have 10 years ago.
“Companies are also now able to engage with a wider set of their stakeholders by offering them shares more easily. The desire to do so is not being driven by the need for funding but instead asking ‘how can we build a community, including employees and customers, that are invested in the company and engaged in our story?’ A company can do this at any point but it is easier if they start at the IPO.”
Gen Z’s concern for corporate ethics is another theme that stood out from the EQ survey. As much as 82% of Gen Z shareholders in the US have experienced frustration when a company they invest in behaves unethically – the highest of any generation. What’s more, 85% of them believe companies are responsible for communicating on environmental, social and governance (ESG) issues, but only 58% say they feel companies are doing it enough.
“Retail investors can have a disproportionate effect in voicing displeasure as they become more sophisticated about ESG and other fundamentals,” says Paul Matthews, CEO, EQ Boardroom at EQ. “As ESG topics continue to grow in importance, companies need to deliver more quality information and perhaps even run a separate, dedicated shareholder meeting on them.”
Perhaps companies need to understand that ESG issues are personal for the younger generations.
Rachel Barrett, ESG partner at law firm Linklaters, says: “It’s easy to underestimate the strength of feeling about ESG. This generation is frightened about their future and it’s not a passing phase.
“But it’s also a huge opportunity for companies. Many are enthusiastic to promote their green credentials, but you must have a good, substantiated story.
“Saying nothing is also a danger. Explain what you have done, what you plan to do, and what’s going well. Where there are challenges, explain how you are addressing them. Don’t only talk about good news. The next generation’s appetite for information is enormous.”
85% of UK and 82% of US gen z shareholders have experienced frustration when a company they own shares in behaves in a way they consider unethical
Source: Shareholder Voice 2021
Cuisia encourages a robust communication and engagement programme with individuals and organisations who represent them. This includes through sophisticated web pages, social media and email aimed at individuals.
“Identify all types of shareholders, reach out and include them in roadshows and town halls meetings,” she says. “Assess, in advance, concerns that individual shareholders could raise at meetings; and how to address those.
“Opening communication channels with hundreds of individuals takes time and planning. But it could – in the case of an activist uprising, for example – give you a crucial mechanism for gaining support.”