Europe has seen a rise in the number of retail investors coming to the market in recent years. One reason for this seems to be the impact of the coronavirus pandemic. The French regulator Autorité des marchés financiers (AMF) recently reported that more than 150,000 new retail investors bought blue-chip stock in March 2020 alone. However, the trend continued long after the initial period of market volatility. Euronext found in May 2021 that its markets in Lisbon, Amsterdam and Paris had all seen individual investors contribute to a greater proportion of total turnover for the year to date, compared with the same period in 2020.
Both AMF and Euronext found one significant development — retail shareholders had switched from net divesting to net investing. In 2019, the French stock market SBF 120 saw a retail divestment of €5.9 billion, even though gaming giant La Française des Jeux (FDJ) launched its IPO in that year and attracted 340,000 new investors to the market. By contrast, the first five weeks of the COVID-19 crisis saw retail clients invest €3.5 billion in SBF 120 equities between March 2020 and May 2021. Euronext reports that there were only two months where retail investors sold more than they bought.
What exactly is a retail investor?
Retail investors are also known as individual investors. They use brokerage firms to buy and sell securities and funds in a non-professional capacity. They operate on their behalf, making trades using their funds for the benefit of their account. However, they might take advice from financial planners and other investment professionals, too.
Why are retail investors important?
Although retail investors usually deal in much smaller amounts than institutional investors, they can still have a significant impact. This is particularly evident in the activist behaviour displayed in recent months. In January 2021, retail investors on social sharing site Reddit collaborated to make stock purchases using the Robinhood app and inflate the share price of failing computer game retailer GameStop. This collective effort was meant to “hurt” hedge funds that were trying to make money by shorting the stock. The activity increased the value of shares from US$20 to US$500 before they fell back.
The number of retail investors in the European Union seems to be relatively low at the moment. Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), claims that just 4% of European households currently own retail shares. However, 45% of households in the United States own mutual funds, which could offer a glimpse into the future of the EU and offer issuers a chance to prepare for retail investors to wield more power.
The rise of Investor Retail Officers (IROs) over the past year has been welcomed because they provide finance for companies that might be struggling to find other sources of capital and individuals tend to invest for the longer term, bringing some stability to issuers. Retail traders are also often credited with affecting market sentiment towards certain commodities, which can, in turn, have a bearing on stock prices.
Understanding retail investors
- An individual investor is generally motivated by the long-term benefits of shareholding, such as the growth of their capital and the receipt of dividends.
- Retail investor portfolios are usually less broad than those of institutional investors, focusing on the best-performing stocks.
- Individuals are often driven in their decision-making by ESG (Environmental, Social and Governance) and sustainable investing concerns. Two-thirds of individual investors in Germany and France said environmentally-friendly investments were their priority.
- A small investor is less likely to scrutinise the company’s quarterly and annual reports than institutional investors.
- Although retail investors tend to invest small amounts, there are often high-net-worth individuals who buy significant amounts of stock.
- Investment decision-making for individuals is often influenced by the financial media, analysts’ recommendations and even social media.
- Around a quarter of individual investors say they would like to attend an AGM, but only 6% do so in the United Kingdom, according to research.
Differences between retail and institutional investors
|Institutional investors||Retail investors|
Professional organisations, such as investment banks, pension funds and insurance companies
Non-professional investor, usually an individual
Pool money from clients
Use own funds and assets to invest
Tasked with increasing the value of clients’ investments
Investing for personal goals, such as retirement and increasing savings accounts
Decisions made by teams of analysts using accumulated data and research
Decisions made by the individual, often with the help of an advisor, based on publicly available information
Trade frequently in large quantities
Trade infrequently in smaller quantities
Can often negotiate lower fees by buying/selling in bulk
Must pay relatively higher fees
Often look for short term investments
More long-term participants
How to communicate effectively with retail investors
Organise online events
Although only 6% of retail investors attend physical AGMs, 45% said they would take part in an online meeting instead. This makes sense since retail clients are not professional investors and are likely to be at work when these meetings take place. For shareholders who do not live near the AGM venue, it would require a full day away from their job for each company they invest in, travelling, attending, and possibly even staying overnight. This is simply not practical.
If you want to communicate with retail investors, you must make it as easy as possible to work around their other commitments. This means organising online events that take up a small part of their day and which they can watch from their home or office, live or on-demand.
Online events should be part of your external communication strategy. And, with the help of Company Webcast’s secure and stable platform, you can make sure you reach all intended viewers, provide a seamless experience, and engage your audience with interactive features. Whether it is an AGM, a non-deal roadshow, a Capital Markets Day or any other event, going virtual helps increase attendance and provides worldwide reach.
Target the right retail investors
Targeting retail investors is different from targeting institutional investors. They have different concerns and need different reassurances. Even within the ranks of retail investors, you need to target accordingly to find those that are the best fit for your organisation. Understand who you are targeting and think about their motivations and requirements before engaging them.
Engage retail brokers
Retail brokers can help you connect to individuals as part of your shareholder engagement. They influence the decisions that some individual clients make, which means that building a good relationship with them can pay off. The more you network with them, the more positively they are likely to view your business and the more likely they are to recommend you when advising clients on investment decisions.
Working with retail brokers could provide you with access to databases of interested investors. This will help you find out more details about those people you are targeting and aid you in adjusting your messaging accordingly in terms of timing, content, and delivery method.
Liven up your social media channels
Retail investors are open to the influence of social media on their transactions. In fact, 34% said they had made at least one change to their investments in the past year based on a social media announcement.
This shows how important it is to be present and engaging on social media. Individual investors see it as a legitimate method of getting to know more about an issuer, so use this channel to keep them informed.
Produce quality blog content
As non-professionals, retail investors might not be aware of many aspects of the investment world or, at least, have some questions about processes and procedures. This is your opportunity to engage them and provide them with answers. If you produce enough quality blog content on relevant topics, you can position yourself as an authority on the subject, which will lead retail investors to your website from Google and other search engines.
Create video content
Video is key to investor relations efforts as it adds credibility to your message. Two-thirds of people would rather watch a video to learn about a product or service, with those who want to read a text-based presentation standing at just 18%. This shows the power of video content resources today. There are no limitations to the types of video content you could use. It can range from pre-recorded videos to more interactive formats such as on-premises and conference-call webcasts.
Where do retail investors get their information?
Retail investors get their information from brokers and advisors as well as from their own research. This could be from your website, your social media, the industry press or anywhere else there is information about what your company does and what it plans to do in the future. Therefore, it is important to be open, to engage and communicate with retail investors in the places they frequent and in their language.
Can retail investors short stocks?
Retail investors cannot short stocks like large institutional investors. Only the latter can borrow the stocks in what they deem to be a failing company, sell them into the stock market and then hope to buy them at a lower price than they sold them for. However, individuals can use a spread bet to speculate on share prices going down.
This information is correct in the UK, but you should check with the regulations in your country for their rules about short selling in retail investing.
If you want to communicate effectively with retail investors, you need to talk in their language and use the channels that they are most comfortable with. Investor Relations Officers (IROs) can try to invite these investors to physical meetings. Keep in mind though, that such events generally do not fit into the lifestyle of an individual investor, who is likely to have commitments when these meetings take place. Webcasts and webinars of virtual meetings make a lot more sense in terms of increasing attendance, along with helpful, informative, and clear social media platforms, online videos, and blogs.
If you want to engage retail investors more successfully, try organising a virtual event with Company Webcast’s market-leading live streaming tools.