For the January program, NIRI Boston partnered with Fidelity Investments to hear directly from Fidelity portfolio management professionals about the critical components of the investment due diligence process and the most effective methods for management to interact with investors. The Fidelity panelists included Ali Khan, Technology; Sonu Kalra, Large Cap Growth; Steve Kaye, All Sector Equity; Morgen Peck, Small Cap Equity; and was moderated by Thomas Hense, Chief Investment Officer.
`The evening began with panelists sharing their thoughts on how management and IROs can more effectively interact with investors. One panelist focused on messaging and advised that IROs and management be consistent, transparent and long-term focused. Another panelist, who shared that portfolio managers spend a lot of time visiting company websites to prospect for new investment opportunities, stressed the value of a clear website that is easy to navigate and has an investor deck that is current and printable. IROs were further encouraged to develop strong relationships with analysts through in-person visits (a couple of times a year) and quarterly outreach calls. The panel agreed that an efficient means to interact with investors and share the company story is by attending conferences and scheduling one-on-one meetings.
An audience member asked the panel to share their current perspectives on the sell side. One panelist indicated that the sell side is helpful in coordinating meetings with companies and added that the frequency of those meetings is highly valuable. Another panelist offered that the sell side remains valuable in reaching out to a bigger distribution of the buy side as well as filling in the gaps in company research. As a group, the panelists shared that they do continue to read sell-side research.
Another audience member asked how fund strategies have changed in recent years. One panelist shared that the key is to identify companies that can out-perform on a consistent basis over the long term, focusing not just on a company’s current absolute rate of growth but on the sustainability of the growth rate. When asked about typical holding period for their investments, responses ranged from 1-3 years on average, but panelists explained that stock sales can occur for several reasons such as fund flow issues, better ideas found, and price targets being met.
When asked about disclosures and what they would like to see offered up more consistently, one panelist immediately replied, “organic revenue growth…going back for long periods of time.” If a company is acquisitive, portfolio managers appreciate when they disclose the strategic and financial criteria used to evaluate deals. According to the panel, providing portfolio managers upfront with an evaluation of a company’s mergers and acquisitions track record is also beneficial.
An audience member asked the panel for their perspective on management incentives, and one panelist shared that they like to see management owning stock and acting as owners in the company. Another panelist shared that, “one of the strongest signals that I look for, especially when stocks are down, is insider buying. I can’t emphasize enough how much that impacts my decision on buying a stock… when things are struggling a bit and you miss a quarter or something, I encourage CEOs and CFOs…to step up to the plate and buy stock.”
Later in the evening, the panel was asked to share their perspective on earnings reports and the current trend towards publishing shareholder letters and focusing more of the call on Q&A. The panel agreed that they prefer it when less time is spent on prepared remarks and more time is left for Q&A. However, they agreed that when a company’s quarter doesn’t go as planned, it’s important to spend more time explaining what happened in prepared remarks. When asked about the importance of hearing from other members of the management team aside from the CEO and CFO and of the value of an investor day, the panel agreed that both are essential.
The evening concluded with an audience member asking the panel to share their view on the characteristics that make a strong IR professional. One panelist shared that an IRO who is engaged and speaks up in meetings is helpful to get to know. Productive IROs were encouraged to make note of the questions that portfolio managers are asking and provide answers to those questions in follow up meetings. Another panelist added that an IRO who “knows the company cold…and can correct the executives at the table” is invaluable.