How the rise in passive investing has changed the IRO landscape.

February 22, 2018, 2:32 pm

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Passive investing is on the rise and becoming more and more mainstream. From Fidelity’s recent entrance into the Smart Beta ETF space, BlackRock’s announcement of moving to robo-managers, and Vanguard’s use of robo-advisers within its high net worth managed accounts, computer programs and algorithms are quickly becoming extremely important in the portfolio management process.

And while passive investing is one of the fastest growing trends in finance, industry experts don’t see eye to eye on its impact. Some think this is the end of active management as we know it, while others assume it’s just a fad. Some say the rise of passive investing will cause market instability, while others assume it will only do good. No matter your opinion, passive investing is definitely on the rise. So let me ask you, how do IROs embrace this movement and engage the machines?

The golden era for active fund managers

Since the very first mutual fund (Massachusetts Investors Trust, which eventually became MFS) opened its doors in 1924, investors have been drawn to the idea of pooled assets being actively managed by a centralized Fund Manager. Constantly in search of diversification and higher risk-adjusted returns, investors have long looked to actively-managed mutual funds for the answers. For a number of reasons, including the proliferation of individually-managed retirement accounts (IRAs, 401(k)s, etc), mutual fund popularity surged in the 80s and 90s. And while index funds such as Vanguard’s flagship S&P 500 Index Fund certainly benefited from this influx of new capital, the vast majority of mutual fund flows went into actively-managed funds. This phenomenon, coupled with the great bull markets of the 80s and 90s fueled mostly by high-growth tech stocks, gave rise to “rockstar” fund managers such as Bill Miller, Peter Lynch, John Neff and others. It truly was the golden era for active fund managers.

Enter: passive investing

Today we see a much different story. With asset classes across the globe more highly correlated than ever, and active managers struggling to beat their benchmarks, investors are looking for more efficient ways of deploying capital.

In 2016 alone, passively-managed funds saw net inflows of $563 billion, while their actively-managed counterparts saw net outflows of $326 billion. Passive funds “grew” at almost twice the pace as active funds “shrank” last year. And this has been ongoing (quietly behind the scenes) for the past few years. In fact, since 2000, passive funds have seen net cumulative inflows of more than $2 trillion, while active fund net flows, over the same 16-year period, have only increased by $1.2 trillion (with net outflows in the past three years).

It is important to note that while all index funds are passively managed, not all passive investing is indexed. In this new world, where quantitative models and sophisticated algorithms make stock recommendations – or outright buy/sell decisions – we are seeing a paradigm shift. Those “rockstar” money managers of the past are now being replaced by computer programs. In so-called Smart Beta ETFs for example, baskets of stocks are built in much the same manner as in an indexed-fund, except that these baskets are not benchmarked against a specific index, nor are they necessarily market-cap weighted at all — and they can change their weightings, or ownership as the programs see fit.

Corporates need to adapt to the new normal

For IROs looking to adapt and keep up with the rise in passive investing, survival lies in the ability to leverage data to tell a story and intelligence to interpret what the “machines” are doing.

Today, corporates are facing a unique opportunity in how they engage their stakeholders and communicate their message effectively by harnessing data. Unlike the active investor, machines don’t care about a sector, who your CEO is, or even your qualitative story. These programs have one purpose – to ingest as much data on securities as possible and to then make a recommendation based upon an extremely detailed and elaborate analysis of the data.

We can’t fabricate data. This is obvious. What we can do, however, is share specific data sets or KPIs that illustrate the story we’re trying to tell. Firms such as UPS, FedEx and Salesforce.com are taking this strategy to heart and showcasing KPIs and other data prominently on their IR websites. Data will always tell an easy-to-digest story.

It’s one thing to produce data; but IROs need to consume it as well. At Q4, we’re already ahead of the game and proactively providing corporates with actionable intel around passive investing trends and forecasts. For instance, do you, as an IRO, know who the market considers your peers? Sure, you know the companies with which you compete in the marketplace. But are you aware that there are other, seemingly unrelated companies, with whom the markets are comparing you to?

Additionally, do you know the data sets the machines are focused on, and why they are driving enterprise value for your company? And while you likely know how the sell side views your performance heading into quarterly results, are you tracking what the buy side is betting on, and how they are positioned heading into earnings? These are vital questions and the answers have real consequences.

The data revolution

Historically, technology has positively impacted our world, and with every new advancement, a transformation takes place that alters how we live, work, and even consume services. Take artificial intelligence for example: its growth is unprecedented, and will only continue to rise. Such advances in technology facilitates the amount of data available at any given time, which is quite powerful and can provide actionable intelligence for IROs. This is the new reality, and embracing it is key for IROs looking to stay ahead of the game. The rise of AI, machine learning and big data have opened the door for new frontiers that are still being born of their roots, and data analytics and the intelligence gathered from it has forever changed the way portfolio management will be pursued.

Adam Frederick is the senior vice president of intelligence at Q4 Inc and blogs regularly about surveillance and its applications for IROs.

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Big and Bold Design Trends for IR Websites

March 2, 2018, 8:57 am

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When it comes to investor relations, a website is one of the most crucial platforms to educate and engage the street about your company’s offerings and differentiate yourself from your peers. From your value proposition to performance metrics, investors need quick and easy access to digestible content, orchestrated by a fully seamless experience across devices. In an overcrowded and competitive marketplace, it’s more critical than ever to leverage web design to bring your brand to life. But capturing a user’s attention span (on average a mere five seconds) means that your IR websites need to not only communicate efficiently and intuitively but also creatively.

In the past, websites were text heavy, feverishly trying to cram everything above the fold with few visuals and sparse white space. Today, we’re creating sites that not only follow web design best practices, but also convey brand personality and differentiation. By thinking outside of the box, designers are giving content that space to breathe and fuelling user interactivity. The aim is to deliver an uncluttered, focused, and authentic experience that’s also unique and engaging.

While IR sites can be somewhat limited when it comes to the flash and flare of their corporate counterparts, bold minimalism and clean design are the key focuses for 2018. Here are four design trends to keep in mind for your upcoming site build or much-anticipated redesign.

Vibrant colours, big typography, and eye-catching photography

This year, bigger and brighter is better. Bright, vivid and crisp colours are replacing traditional muted palettes. Portraying a strong and confident brand personality and catching (and keeping) visitor attention, these colour schemes are being paired with large and often oversized typefaces and headers. The impact is dramatic but still minimalist and clean.

Designers are also featuring big and bold photography with a focus on being real and engaging. Boring and generic corporate stock photos are being ditched for striking real-life images that truly reflect a company’s personality and tone.

Icons, infographics and animated graphics

Corporates are turning to design for high impact visual storytelling. Custom icons and infographics can effectively convey and simplify complex information at a glance. Flat design is an especially popular and minimalistic approach, featuring two-dimensional illustrations with vivid colours, crisp lines, and clean open space. Designers are also leveraging microinteractions to make content and metrics more dynamic by engaging the user through animated icons and graphics.

Embedded Video

Videos continue to add a human touch and breathe life into static content. A Hubspot study claims that 59 percent of executives prefer to watch videos instead of reading text, and 92 percent of these mobile users share video content with their network. Using smart design to cleverly and organically integrate video content throughout your website is essential. An innovative and interactive example is a scrolling “slider” which consolidates multiple videos from a variety of voices across the organization.

Mobile Optimized

Last year, mobile usage officially surpassed desktop browsing. According to an IR Magazine survey of 300 institutional investors, 83 percent of investors rely on mobile to do their work and 68 percent look at investor-related content throughout the day. Staying economical about space and user attention span, designers are finding more intuitive ways to organize information for mobile (including the long scroll), using graphics that are instantly consumable (like icons and infographics) and maximizing on microinteraction opportunities.

Overall, regardless of access point, design today is all about conveying a strong brand image and engaging the end user. The focus is on creating simple but powerful experiences, through accessible, digestible, and stand-out content. If these design trends are any indication, the future is clearly bright and bold.

Marla Hurov is the Content Marketing Manager at Q4 Inc and blogs regularly about trends in brand strategy and digital communications.

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How real-time surveillance shines light on a dark market

March 8, 2018, 8:47 am

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The capital markets industry is ripe for disruption. With the evolution of technology, machines are helping us do our jobs faster and more accurately than ever before. And when it comes to accessing real-time insights, IR executives no longer need to remain in the dark.

There are critical information voids in the IRO’s workflow, from insights about stock buyers and sellers, to market participant types driving valuation, and institutional targets that shift with investor sentiment. As someone who has spent the last 20 years advising IROs on shareholder and market intelligence, I know the power of real-time insights. Today’s latest surveillance tools are now driven by artificial intelligence, offering unprecedented clarity and actionable intelligence in an otherwise nebulous industry.

Working with outdated information

In the current market, investors have a much shorter time horizon than ever before. A study by SG Global Strategy Research reveals that the average holding period for a stock on the NYSE dropped from over 10 years in the 1940s to less than four months today.

According to Ana Avramovic, Trading Strategy Director at Credit Suisse, the annual turnover rate in U.S. stocks stood at 307 percent in 2015, up from 303 percent in 2014. Though down from the peak turnover rate (of 481 percent) in 2009, this still amounts to an average holding period today of just 17 weeks.

Given these stats, 13F data might be able to tell you who owned your stock four times per year, but is this actually adequate?

Rising above market noise

Capital flows are dynamic and fast-paced. HFT, Passive funds, ETFs, and Quants, have all exploded in terms of popularity and assets under management. According to Credit Suisse, while overall volumes and HFT volumes both peaked in 2009, they still remain historically high. Meanwhile, active fund volumes have actually declined (both absolutely and relatively).

Prior to the emergence of artificial intelligence, deciphering “real” volume from ETF flows or HFTs was extremely difficult, if not impossible. Even traditional surveillance, driven purely by experienced analyst know-how and industry contacts, has struggled — at times — to provide true insight and accurate intelligence and rise above the noise. There is just too much data, and simply not enough manpower in the traditional surveillance model to effectively comb through it all.

Looking to Artificial Intelligence for solutions

With the increasingly high turnover rates of investors, combined with the market’s deafening trading noise, finding relevant and actionable intelligence has become more difficult than ever.

In terms of investor targeting, relying solely on biased feedback from a variety of market participants and stale 13F data doesn’t cut it anymore. It’s no longer enough to have a list of top institutional managers and a cheat sheet of investor segments that own your peers. The speed of information flow and the short attention span of today’s buyside has made the timing of IRO marketing efforts absolutely essential. Like in the sales world, IROs need to constantly track and monitor their prospect base. When you’re “selling” your company’s story to the investment community, it’s critical to stay up-to-date on the latest trends, changes in sentiment, and competitive threats. Your success depends on the ability to get your message out to the right investors and put your senior management in front of the right names at the right time.

Investor targeting is where the marketing process first begins, but it certainly doesn’t end there. IROs also must be able to interpret how the Street is positioning for the near-term future, and understand whether your company’s share price is being driven by true institutional activity or ETF flows. Trustworthy real-time shareholder intelligence is crucial. Leveraging artificial intelligence shines a light on some of the market’s darkest areas and breaks through all of the noise. Essentially a Superhero version of the long-forgotten “Floor Specialist,” today’s tech-powered stock surveillance offers real-time analysis of market structure and capital flows (and their drivers). With these AI tools, IROs are equipped to understand and communicate shifts in short-term sentiment and investor expectations.

This new brand of real-time intelligence allows IROs to gain proactive insights into short-term price volatility and its causes, uncover short selling trends, quantify ETF flow impacts, identify Activists moving company shares, and recognize institutional shareholder activity. It’s actionable intelligence that you can feel confident in pushing upstream to senior management and the board; and also enables you to precisely forecast which institutions are most likely to buy or sell your shares.

AI surveillance not only dramatically improves your targeting efforts and ability to understand real-time trading drivers, but also provides the highest assurance that you always put your best foot forward.

Q4’s next generation AI surveillance tool, iris® is programmed to accurately report and even predict movements in shareholder and peer stock. From daily insights to weekly shareholder activity reports, she’s designed to arm IROs with real-time intelligence. This kind of actionable intel can truly empower you to strike your target audiences at the most critical moments, and ultimately expand multiples.

Adam Frederick is the senior vice president of intelligence at Q4 Inc and blogs regularly about surveillance and its applications for IROs.

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How to integrate GDPR and protect yourself from a €20 million fine

March 15, 2018, 7:34 am

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With the EU’s General Data Protection Regulation (GDPR) coming into effect on May 25th, the clock is ticking loudly to integrate the new data privacy laws. The stakes are likely higher than you imagine. If your organization is deemed to be non-compliant, you could face fines as staggering as €20 million or four percent of your global turnover. These unprecedented penalties are part of the EU’s global plan to aggressively protect the privacy rights of EU residents. The focus is on personal data that can be directly or indirectly used to identify an individual. This applies to all organizations that collect or process the personal data of EU citizens. While North American companies might think that they’re off the hook, multinationals take heed. This includes non-European based organizations that provide service to the EU.

To complicate matters, there’s a fair share of confusion surrounding what GDPR’s last phase involves and who needs to comply, as well as information that can be interpreted in multiple ways. As an infrastructure and security specialist and certified EU GDPR practitioner, these are the steps that I professionally recommend to ensure that your organization is ready for compliance.

8 Steps for integrating GDPR

1. Start data mapping:Identify how your organization handles personal data. The core way to make sure that you’re compliant is to conduct a comprehensive review of how your data is used, stored, retained, and backed-up. Start mapping your current processes for collecting, holding and processing personally identifiable information (PII data). Ensure that you have adequate security in place to protect this data. Collect a list of all vendors and find out if they’re GDPR compliant. According to GDPR, both collector (your organization) and processor (any vendor who processes data on your behalf) are liable for data breaches.

2. Identify your high-risk data: Carefully assess highest risk personal and sensitive data. Data mapping all of your applications at the beginning of any project will help give you insight into what needs a Data Protection Impact Assessment (DPIA).

3. Check your security certifications: Data privacy and security are two sides of the same coin. Ensure that you have adequate security controls in place, to protect the personal information of your clients and customers. Security certifications like ISO 27001, SOC1, SOC2 and Cyber Essentials can help with GDPR compliance. Encrypting both stored and active data is key to ensuring customer anonymity and keeping personal data safe, especially during a breach.

4.Prepare for Subject Access Requests (SAR): According to GDPR, your data subjects have the right to be informed about and object to their data being used in automated systems. If they request for their information to be deleted or exported, you must respond within one month (or else face large fines). Train your support staff to be ready for these kinds of requests and create phone and email script templates to address customer concerns. Also, consider automating these SAR requests using methods like API.

5. Report a major incident within three days: Build an incident response policy to ensure that an EU Supervisor Authority is notified within 72 hours. Penalties for not reporting serious breaches can be up to 20 million Euro or four percent of your global turnover. Establish an incident response team including IT, security, management and communication. This team should be prepared to quickly identify and remediate the breach, as well as assess whether it’s severe enough to be reported.

6. Establish an employee GDPR security awareness program: Build a GDPR security awareness program and train your employees company-wide about GDPR. Your team as a whole needs to use best practices for handling personal data.

7. Update your privacy policy: Make sure that your privacy policy is up-to-date on your website and ensure that it’s simple for an end user to understand. It’s key to define why you’re collecting personal data, how you’re storing and securing it, as well as whether it will be shared with third parties.

8. Get clear consent: According to GDPR, consent has to be clear, informed, specific and given freely. Make sure that you have opt-in consent for sending emails and any other kinds of marketing messages. Opting-out should also be as easy as opting-in. Log all of these activities in your backend database (for compliance auditing) and always include a privacy notice about your purposes for using personal data. Then be diligent about exclusively utilizing data for these specific reasons.

There’s only a few months left to align your organization’s processes with GDPR. Keep in mind that the sole purpose of the new laws is to protect the personal information of your end users. It’s crucial to get your security policies up to speed with the ISO27001 standard and protect your PII information, from handling email opt-ins and outs, to “subject access” requests, consent notices, and privacy policies. Make sure that your organization also has strong response systems to address, report, and log any major breach within 72 hours. In the worse case that you’re actually hit with an intrusion, do your due diligence now and be prepared to show that you did everything in your power to safeguard your clients and customers. You’re not only protecting your consumers, but yourself.

Vee Punia is Director, IT & Infrastructure at Q4 with over 17 years of experience in IT Infrastructure Management, Compliance, Security operations, ITIL Change Management and Service Delivery of Enterprise and SaaS platform.

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Will the future of IR be powered by artificial intelligence? Webinar recap

March 22, 2018, 5:47 am

≪ Previous: How to integrate GDPR and protect yourself from a €20 million fine

Artificial intelligence (AI) is quickly moving from the realm of science fiction to reality. IR teams need to understand how they can harness its potential, especially in terms of surveillance, targeting, and activism. Q4 and IR Magazine hosted a webinar on March 19th, exploring how AI tools can provide actionable intelligence to improve the IRO’s workflow and performance. Moderated by Ben Maiden (Editor at IR Magazine), the panel of experts included Adam Frederick (SVP of Intelligence at Q4), Gregg Lampf (VP of investor relations at Ciena), and Kimberly Stewart (Head of Investor Relations at Solvay).

What is AI and machine learning?

While it might sound like the fantasy world of machines and high tech gone wild from movies like the Terminator or Minority Report, the technology for using AI in our daily lives is already here. According to Adam Frederick, the definition of AI is broad. “From the advanced cognitive capabilities of autonomous cars and robots, to everyday technology like Alexa on your smartphone, Google on Google talk, or a Nest Learning Thermostat, it’s all machine learning.” When it comes to IR, he continues that AI technology can “sift through mountains of data from various and disparate sources like real-time equity, options trading, business cycles, commodity prices, fund flows, and high frequency trading models. AI can pull them all together in real time and convert them into easily digestible and actionable intelligence for the IRO.”

AI can be leveraged for surveillance, targeting, investor sentiment, as well as market expectations, structure dynamics, and analytics. By synthesizing and making sense of various, and often disparate data sets, it can give the IRO a greater understanding of the driving forces behind trading. Essentially, AI offers a depth and breadth of intelligence that’s faster, more accurate, and objective than any analyst could humanly provide. Also, machine learning means that an AI engine will become increasingly skilled at spotting correlations and patterns in the data.

How are IR teams using AI?

For Gregg Lampf, “it’s all about creating insights.” He explains, “we’re challenged with how much we can review, never mind internalize and act upon. We watch different types of trading portals with all kinds of data coming at us in real time.” Whether it’s looking for ownership relationships and trends, determining the impact of your outreach, or analyzing the effects of sentiment on trading, it’s an overwhelming challenge to predict and track the outcomes driven by the IRO and the surrounding market’s activity. This is where there’s a tremendous opportunity for AI. According to Gregg, “Right now, all of this is manual. We can get these insights, but it’s really about timing. We all want to make decisions as quickly as we can, and that’s where AI can come into play.”

His company, Ciena, recently launched an AI product for optical communication products. It measures resources across service provider networks and produces on-demand content like Netflix. For Gregg, “The opportunity for IR is how we can apply this kind of intelligence and insight to make information more actionable. I rely on my surveillance expert, but if I can introduce AI and add science to the art, it can help both of us do our jobs better.”

What are the benefits of AI for IR?

Kimberly Stewart recently tested how AI could potentially help her with market perception. Using a third party, she executed a perception study interviewing 20 investors, in combination with an electronic survey, which was sent to all of the investors her team met over the last 12 months. She then took these results and measured them against analyst reports that were generated by an AI tool. The AI-driven results closely matched those of the perception study and survey, at a fraction of the cost.

She sees a lot of value for using AI, especially for deciphering conference call language, market sentiment in relation to her peers, as well as smart investor targeting. Kimberly summises that AI offers “something much more sophisticated than a quick and dirty survey to the investment community and sifting through a pile of analyst reports.” Sharing this kind of high powered intelligence with management will not only offer deep insights about investors, but also the company’s overall picture for better decision making.

Adam Frederick adds, “AI can do everything humans can do, but just faster and more accurately. It can find correlations in the data that humans sometimes can’t see.” He points to Q4’s Activism Alarm as an example. The alarm’s AI-driven algorithms are designed to spot triggers in trading data and typical patterns in activist behaviour. He also sees the power of AI for “looking at sentiment and how the money is positioned in the marketplace.”

What is the future of AI and what tools do IROs want?

At the highest level, Gregg Lampf envisions using AI to help IROs anticipate and plan. He explains, “if I can apply AI to look at how effective my program is and where I need to make improvements in terms of outreach, to analyse how predicted ownership actually played out, that would be really helpful.” For him, AI technology should be embedded seamlessly into our workflows, while continuing to keep the IRO as an integral player in understanding businesses and markets.

Adam Frederick believes that we’re only scratching the surface with advances in AI. At Q4, he’s seen the strongest traction on the surveillance side. He predicts that what’s next to come is automating the IRO’s entire workflow. He anticipates that AI will be able to forecast the IRO’s calendar with proactive meeting insights. And when it comes to smart targets, he believes that AI will be able to determine the likelihood of funds buying a stock in the next six months or so. In terms of analytics, he expects that AI will be able to forecast an IRO’s success, by analyzing hit rates and the outcome of meetings, as well as comparing past and present market sentiment.

It’s clear that AI technology is becoming increasingly smarter and more intertwined with our everyday lives and workflows. From investor sentiment and market expectations to earnings call analytics and activist signals, IR teams are already leveraging AI to help digest intelligence, so that’s it’s immediately actionable. The key is to find the right products and partners that are strategically integrating AI into their offerings. Adam sums it all up, “It’s not about automating you out of a job, but automating processes so you can focus on increasing multiples against your peers and drive value for you and your shareholders.”

You can watch the webinar here for more on AI and how IRO’s are leveraging its potential to improve their day-to-day. Learn more about Q4’s AI engine, iris, here.

Marla Hurov is the Content Marketing Manager at Q4 Inc and blogs regularly about trends in IR and digital communications.

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