One of Hut 8 Mining’s larger retail investors is a soccer mom named Char, who made her first serious foray into trading only after the pandemic hit, according to Sue Ennis, Head of Investor Relations at the Toronto-based crypto company. Ennis regularly talks with this California-based, DIY investor, who has made about US$250,000 on Hut 8’s stock and who’s known as Chardonnay Boger on Twitter (where Ennis is bigsuey).
Ennis maintains that the rewards that come from keeping in touch with a new breed of retail investor are enormous. Not only are retail investors a source of liquidity and legitimacy for Hut 8, which has a 60/30 retail-to-institutional mix, but these engagements hold their own appeal. “It’s cool to see how empowered people [like Char] have become,” Ennis says.
Retail investors are a hot topic for Canadian IROs, given that their numbers are increasing fast. It’s estimated that in North America, the number of retail investors has doubled since 2016. Even though the rise of the retail investor predates the pandemic, COVID-19 clearly helped fuel the trend. A full 15% of today’s retail investors got their start in 2020, according to CNBC (https://www.marketplacefairness.org/blog/retail-investors-statistics/).
Increasingly, IROs in Canada and beyond are keen to communicate with a retail audience, while in the past, many viewed individual investors as too needy and too time consuming to warrant much attention.
A decade or so ago, a well-regarded Canadian IRO “told me he didn’t return retail investors’ calls. Period,” says Susan Soprovich, Partner at Clear Path Strategies, a Calgary-based strategic communications firm. “At the time, I was flabbergasted, but that’s how some IROs were. Now there’s been a bit of a wake-up call and IROs are realizing: I need to provide customer service and information to this group.”
Why Court Retail Investors?
The droves of retail investors who entered the equities market – motivated by stimulus cheques and more unstructured time – are “a new phenomenon,” says Ennis. “Some of the YouTuber analysts who literally have hundreds of thousands of followers only became active in the pandemic.”
Ennis points out that Hut 8 is the first blockchain company to be included in Dow Jones’s S&P/TSX Composite Index, a distinction almost certainly owed to high trading volumes from the company’s active retail base.
One positive development can lead to others. She notes that three separate pension plans now own Hut 8 shares because they buy only companies within the S&P/TSX Composite. “We’re thrilled that we have pension plans that hold us. We’re the only [crypto] miner that can say that,” she adds.
To meet the needs of a retail following, an IRO needs to understand changing demographics. Many of the retail investors that Ennis interacts with on a regular basis are 25-to-40 years old, and the group tends to “skew a little bit more male.”
In another sign of generational changes afoot, the median age of retail traders through online broker Robinhood is just 31, according to Reuters (https://www.marketplacefairness.org/blog/retail-investors-statistics/).
Soprovich points out that this demographic shift is accompanied by new behaviours: “There’s a different culture in younger investors. They’re less inclined to be like the old Mom & Pop investors, who gave money to a broker or put it in a mutual fund and prayed their investments went up. They’re much more involved.” She continues: “We definitely are seeing more educated, younger investors who do their own research.”
Changing Communications Styles
Rhylin Bailie, Vice President of Investor Relations for Equinox Gold, welcomes all investors, retail or institutional. “Our quarterly calls and our AGM have always been live webcast and we don’t screen,” she says. “We take questions from anybody.”
“I know this policy is unusual,” continues Bailie. “The lawyers are always saying, ‘What if someone asks a question that we don’t want to answer?’ Well, if someone is asking you something that makes you uncomfortable, then that is the question that’s most important to be addressing.”
For IROs, anticipating a wide array of investor questions has become part of their remit.
As an example, the briefing book that Quentin Weber, Senior Advisor, Investor Relations, at WSP Global, prepares for his company’s CEO and CFO has become much longer. This is due in large part to the changing dynamics of retail participation. “If I compare the Q&A reference document from a couple of years ago to today,” he says, “it’s a complete shift. The variety of topics is huge now.”
Meeting the needs of retail investors, says Weber, means being attuned to employees, given that 4,000-5,000 of the company’s Canadian employees are also shareholders. “Answering an employee is by far the hardest type of retail shareholder to answer,” he says. “They have their own perspective, and they can really go deep into specific details.”
Weber points out that among the topics that most interest employees and other retail owners are ESG and diversity and inclusion.
A heightened interest in ESG is not surprising, given that an overwhelming majority of Canadian retail investors – 85% – expressed concern about climate change and the environment in an RIA (Responsible Investment Association) study conducted in late 2021.
While a majority of Canadian retail investors are interested in ESG, many are concerned that they don’t know enough about ESG and “most of their advisors aren’t helping them,” according to Dustyn Lanz, Senior Advisor at ESG Global Advisors in Toronto. He notes that IROs can fill this void but too often they don’t prioritize retail investors, whose holdings are small.
Ignoring your retail shareholders “could prove to be a grave error,” contends Lanz. He notes that trouble can arise quickly “if retail traders on Reddit decide to go after a coal company that’s not transitioning to net zero...”.
Rise of the Reddit Investor
A major wake-up call to the clout of retail investors came in January 2021 with the trading frenzy that pushed GameStop from $4 to a high of $483 per share. (https://corpgov.law.harvard.edu/2022/04/08/gamestop-and-the-reemergence-of-the-retail-investor/).
“What you saw with GameStop was the ability to impact a stock positively or negatively just by the fact that there’s a massive volume of trading that is being triggered by retail shareholders,” says Weber. “The way they communicated was principally by Reddit.”
Weber draws a contrast between yesterday’s retail investors, who often acted alone, and today’s, who can whip up a controversy in a matter of hours via social media. “Addressing Reddit and social media warriors is complicated for IR,” says Weber. He uses Cision’s media monitoring platform to stay abreast of what’s being said about his company: “If you post on Reddit and talk about WSP, I’ll see that post.”
Monitoring is sufficient for some IROs, while others eagerly dive into social media, feet first.
Hut 8’s Ennis, for instance, often googles Hut on YouTube, looks up the various analysts, and then gets in touch.
While she views social media connections as enormously beneficial, she does caution IROs against engaging indiscriminately. It’s too easy, she says, to get sucked into an endless conversation with an angry retail holder who owns 1,000 shares and is not meaningfully moving the stock. “It’s a fine balance,” she says. “You’ve got to make sure the ROI for your effort is there.”
A New Set of Assumptions
How IROs should engage with retail investors is a perennial question. Ennis is convinced that, going forward, more active communication will remain important: “Retail investors have tasted what empowerment feels like, and so I think this is the new normal. I really think we’re forever changed.”
For Equinox’s Bailie, drawing distinctions between retail and institutional shareholders no longer works. “Every meeting is a worthwhile meeting,” she says, “because even if a fund doesn’t invest, fund managers might invest personally – or they might tell someone, ‘Hey, this isn’t in our profile but I had a meeting with a great company and you should take a look.’”
Bailie also cautions against giving too much weight to the downsides of communicating with retail investors.
“People complain about the amount of time that retail investors take up. The way I look at it is: these are the people who most need my support,” says Bailie. She once helped a widow who had no idea what to do with her husband’s Equinox shares by accompanying her on a call with her banker and estate planner. “Days like that are my good days,” she says. “I feel like I’ve reduced somebody’s stress levels, and that’s my job.”
“When I look at our base, I don’t think of them as retail or institutional investors. I think of them all as investors,” concludes Bailie. “And they all deserve an equal amount of time and respect and information.”