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Heartwood Partners has written extensively about MIFID II and its impacts so it was interesting to hear Rob Mundy, CEO of Research Tree discussing impacts of MIFID2 on the sell side. His conclusion tallies closely with ours: research budgets will fall in 2018 and independent company research written by the sell side will also decrease.
Rob outlines his views in the excellent interview with Tamzin Freeman of piworld. In his discussions with the buy-side and sell side he is expecting buy-side research budgets to fall by around 50% in Jan 2018 following the introduction of MIFID II. He expects less independent research to be written as a result of MIFID II but does expect listed corporates to partially compensate for this gap by commissioning brokers to write research on them. Heartwood Partners agrees with this conclusion but would also suggest companies think about ways to help themselves spread their investment case. A further suggestion is not to forget the "little people" (private investors) who are often more informed about the company and the space in which it operates than the brokers would have company management believe. Spending time educating investors, both institutional and retail, pays dividends over the long term. Private investors can also provide a valuable source of liquidity which is often underappreciated.
We are helping a number of companies to improve their messaging to investors, across all formats, whether it is on their websites, making RNSs as clear as possible or giving greater detail in presentations. All investors have demands on their time, so make it as easy as possible for potential investors in your company to make an informed decision as quickly as possible. We wholeheartedly advise senior management to look at the investor relations section of their own website through the eyes of a potential investor. There is only one question that really matters: "would I invest in this company?"
We would encourage companies, especially at the small cap end of the spectrum, to embrace the more serious private investors via research providers like Research Tree, organisations like ShareSoc (UK Individual Shareholders Society) or via content providers like piworld who distribute content specifically aimed at private investors. There are some very influential private investors like Paul Scott at Stockopedia, David Stredder at ShareSoc or John Kingham at UK Value Investor who are deeply analytical and have large followings among private investors. Companies should take interactions with these opinion leaders very seriously. Through our network of contacts Heartwood Partners can help companies navigate these unfamiliar waters and use these less traveled distribution channels to widen the understanding of the company's investment proposition.
Simon Young
September 2017