Public companies seeking to court new investors and build relations with existing ones will almost always be told by some register analysis providers that they should focus on targeting those investors with underweight or overweight positions in their stock, relative to a particular index.
In other words, it’s those investors who appear, on a basic reading of the share register, to hold relatively little and relatively a lot of your stock that matter most.
Unfortunately, these companies are being badly misled.
The size of an investor’s position in your stock is determined by many factors, some of which will never become apparent without a deeper investigation.
For one thing, overweight and underweight positions are only relative to a particular index. If, for example, your company is a bank and a particular fund manager has taken the view that there is about to be a global banking crisis and she has sold out of most bank stocks, then trying to line up a meeting to convince her of the value of your company is pointless. Similarly, if the investment mandate of a Fund has no regard to index weighting, it is completely pointless to use index Underweight and Overweight statistics for the manager of that fund.
There is also the complication of determining which funds in a particular asset manager’s portfolio hold the position(s) in your stock. A fund manager may actually be overweight the stock in a particular fund, based on that fund’s investment mandate, but appear to be underweight in the basic register analysis as they control many different funds with different mandates, some of which may not be invested at all. Then there are the “fund of funds” and industry superannuation funds which invest in a series of fund managers and only disclose their gross positions.
Standard statistical register analysis, based on the overweight/underweight method, also relies completely on publicly filed information, so it can be very out of date by the time it appears. It also makes it impossible to identify funds that are invested indirectly in your stock (via nominee companies or derivatives, for example).
All this adds up to a potentially highly misleading set of data for the purposes of investor targeting.
A Register of Relevant Interests (RORI) analysis in combination with a detailed peer analysis study (looking at the registers of companies similar to yours) are the most effective quantitative tools to accurately identify the investors you really should be targeting. A qualitative review of target fund manager investment mandates and a survey of investor perceptions of the company can also be a very useful adjunct.
Doing investor targeting the right way from the start not only improves the productivity of the investor relations team, it also saves money in the long run and avoids the risk of alienating existing and potential investors by making your pitch to the wrong people.