Mark Fattedad, Jarislowsky, Fraser
At Jarislowsky Fraser, we take a bottom-up, fundamental approach to long-term investing. Our holding period, often in excess of eight years, leads us to place a high importance on having a deep understanding of management, culture and governance. The global pandemic, and resulting shift towards virtual meetings, has necessitated a pivot in the means with which we conduct our research. To discuss the pros and cons of corporate access in a virtual world, I sat down with two of my colleagues on our Global Investment Team: Bruce Beingessner, Director & Senior Research Analyst, Investment Strategy Committee Member; and Drew Callander, Director & Senior Research Analyst.
How has your access to management been impacted by the pandemic?
Beingessner: The elimination of travel has reduced the management and investor time commitment necessary per interaction, and it seems that has allowed a greater amount of total interactions – either in a one-on-one setting or a group meeting. In terms of the quality of interaction, it’s important to remember that some management interactions were already virtual. When we have a question, it’s often easier to just pick up the phone versus scheduling a meeting. But of course, like every other interaction, it works better when we already have an established relationship.
Callander: Generally, companies exhibited improved communication and access to management during the pandemic. In addition, some companies gave real-time results inter-quarter, which is historically unusual, and some would comment on the first weeks or month of the new quarter when reporting the prior quarter. They also provided more granularity in geographic and sequential month-by-month performance, which was very important to understanding the cadence of results during the pandemic. Lastly, we also saw some CEOs write open letters, highlighting various initiatives including operational, financial and social programs. This was something that was less common, but which we found very useful.
How do you think about the value of large group, small group and one-to-one virtual calls?
Beingessner: All three types of meetings have value. Large group meetings in particular are more numerous, but I think it’s fair to say that questions from individual investors during these meetings have been less numerous, and the format has moved toward more of a fireside chat led by the sell-side. The upside of this is that the sell-side is positioned to ask the topical questions. So, there is a role for them for sure. But there is also a role for smaller meetings where investors may perhaps ask fewer mainstream questions that we may not have thought of. Both of these types of meetings are helpful in understanding what we need to know about and the questions we need to ask to formalize our thesis. Ultimately for us, the real art is figuring out the best questions to ask and asking them in a one-on-one format. But to get to that level, it is helpful to have done those group meetings first.
Callander: Historically, a large group would have been six people. Today, that would be considered a smaller group meeting, and I think they are more difficult to manage virtually. Particularly when done over the telephone, they tend to lose some of their value. It’s really important to be able to see the other participants, both to be able to gauge reactions, as well as establish a respectful flow between questions. A few companies have offered two-on-one video meetings with ourselves, one other investor and the CEO, and that worked quite well.
Large group meetings can now be as many as 40-60 people and really look and feel much more like a conference presentation. I think these were an effective way to get management updates intra-quarter, but in instances where video was not used, some of the nuance was lost.
For one-on-one meetings, there is some incremental value in using video technology because we can invite other members of our research team who otherwise might not attend if the meeting were in person. The video technology not only allows us all to see each other, but increases the diversity of questions and fosters additional debate on our team. Ultimately, I think, as an analyst, I still prefer to be in person, but could see a use for video to remain part of the process going forward.
Does the virtual format for industry conferences hinder or assist your research process?
Beingessner: Virtual conferences have helped to break down geographic barriers, making these much easier to attend. In general, it seems like attendance is way up. So, it’s easier to get more of that base level information with less effort from both sides. Overall, there are some clear benefits, and I think it makes sense to continue to have more of these in future. A hybrid approach might be interesting to consider, where even in-person conferences offer the opportunity for one-on-one slots to still occur virtually.
Callander: I agree that this breaks down barriers so think it’s a net positive. It also enables additional dynamics, such as the ability to discuss reactions with team members in real-time. In addition, a video replay is much more valuable than a conference transcript, which was often what was available in the past.
In helping you perform due diligence, are any companies offering innovative approaches to things like site visits and divisional management meetings?
Beingessner: I would say site visits have been sidelined and we haven’t really seen anything particularly innovative on this front yet. Depending on the sector, there could be some value in addressing this need. However, depending on when a vaccine is ready, I think many investors will be okay to wait.
Callander: This is the big disappointment with virtual marketing. With virtual, we don’t really get access to non-C-Suite management. One of the main benefits of site tours is gaining access to divisional management and people on the floor, which often provides helpful colour on culture and other qualitative factors. That said, our level of corporate access and research flow have both accelerated in a virtual world. I expect we will continue to learn and integrate new ways of getting at this information as time goes by.
Any last comments or wishes about what corporate access might look like post-COVID?
Beingessner: My guess is that some of this will remain post-COVID, with less travel and more virtual, given the efficiencies. However, investors are always looking for an edge and better quality (i.e. in-person) communications will be an edge that will be in demand.
Callander: One of the benefits out of this is that many corporations are embracing video conferencing with investors, where a phone call would have been done pre-pandemic. If we can’t sit down face-to-face, IROs should have technology in place to set up video calls with management and Board members. Additionally, video enhances our ability to collaborate with team members, and facilitates more productive conversations with deeper insight.
In summary, the pandemic has accelerated the adoption of video technology, which has helped to break down barriers, reduce the time commitment per interaction and open up new ways of collaborating with team members. Ultimately, in-person communication is something that we, as long-term fundamental investors, will continue to place a high degree of value on. However, we certainly can see the value in a future where IROs provide opportunities for a blend of both virtual and in-person access.
Mark Fattedad, CFA is Director and Portfolio Manager, Institutional Management, Jarislowsky, Fraser Limited.