QIC Inside Investor Relations Volume 33: What kind of investment themes is your company related to?
Picture Source: Shyam Kumar Prasad
Have you recently reviewed which investment themes your company stock is classified under? The metaverse craze recently may have reminded many people that whether investors and the market have classified your company in certain investment themes is more important than previously thought.
Why should you care about which investment themes your company is related to?
As the line between public relations and investor relations is getting blurrier now (please refer to Inside Investor Relations – Volume 23 – What is Financial PR? Some general guidelines to Financial PR), it is easier to get media attention and attract investors When a company is related to certain investment themes, on top of which there is a better chance to improve trading volume. Investors receive more information about the companies, compare with peers, and understand their suppliers and customers. Being categorized in relevant investment themes makes it easier to understand the companies and the value of the company could be more transparent.
In addition, long-term investors also look at megatrends and tend to focus on themes that drive growth. If the company is viewed as highly related to these themes, appropriate communication will put the company on long-term investors’ radar, meaning the chance of investors investing in the company increases, and this likely leads to better company valuation as well. According to Morningstar*, as of the end of March 2021, assets under management in these thematic equity funds more than tripled to US$596 billion from US$174 billion worldwide over the trailing three years. Evidently, management knowing how the market and investors view your company in terms of investment themes is crucial.
What are the investment themes that investors focus on?
There are a wide variety and sizable themes that people are interested in, so in this article we focus on the long-term themes that likely will maintain their importance in the foreseeable future. Moreover, foreign institutional investors play important roles in Taiwan’s capital market, as around 70% of the top 20 investors are foreign institutional investors, ranked by market value (please refer to Inside Investor Relations – Volume 11: Why foreign investors are also important to small-mid cap and micro-cap stocks?). Therefore, below we list the investing themes the top three foreign institutional investors care about the most.
Capital Group lists 10 investment themes for the next ten years in an article on the official website.
1. The big keep getting bigger
2. Cloud demand is sky-high
3. Innovative leaders may emerge in emerging markets
4. The prognosis looks good for a cancer cure
5. House calls are coming to health care
6. Content is king, but streaming is the kingdom
7. Artificial intelligence could spark the next tech revolution
8. Self-driving cars may rule the roads
9. ESG could be a pillar of portfolios
10. The U.S.-China rivalry may define geopolitics
BlackRock introduces thematic investing and their thematic fund products on their official website.
Active funds focus on the following themes:
1. Fintech
2. Future of Transport
3. Next Generation Technology
4. Nutrition
5. Sustainable Energy
6. Circular Economy
Index funds cover the following themes:
1. Aging Population
2. Agribusiness
3. Automation & Robotics
4. Digitalization
5. Digital Security
6. Electric Vehicles & Driving Technology
7. EM Consumer Growth
8. Global Clean Energy
9. Global Timber & Forestry
10. Global Water
11. Healthcare Innovation
12. Inclusion & Diversity
Fidelity also introduces thematic investing on their official website. We list the three themes that are more relevant to the topic of this article:
1. Disruption: Disruptive Automation, Disruptive Communications, Disruptive Finance, Disruptive Medicine, Disruptive Technology, Cloud Computing, Digital Health, and Electric Vehicles and Future Transportation.
2. Megatrends: Agricultural Productivity, Water Sustainability, and Clean Energy
3. Sustainable investing (ESG)
Based on the aforementioned themes, sustainability-related topics are undoubtedly popular. Please also refer to our Inside Investor Relations – Volume 8 – Should companies invest in ESG? for more information. The themes listed above show that if your company is classified into thematic stocks such as "sustainability", "electric vehicles", "digitalization", "innovative technology", etc., you have a chance to get extra attention from investment institutions.
How do you tie your company to relevant themes more closely?
If you would like to tie your company to related investment themes more closely, we have five recommendations below:
1) Labeling the revenue categories with labels clearly and directly link to the relevant themes: Revenue mix is one of the most important information to understand a company, and sometimes there may be room to communicate it clearer or in a more strategic way. For example, revenue related to public transportation may be classified as "transportation" indeed, but if it is defined as "low-carbon transportation", it not only expresses the business content more accurately, but also appropriately highlights the theme of "green sustainability". Or for instance, even though it is correct to label revenue related to solar and wind as "energy industry", if the revenue classification is labeled as "renewable energy industry", in addition to being clearer, it also helps investors looking for sustainability-related companies around the globe find the companies easier.
2) Providing additional statistics regarding relevant themes: If the existing categories of revenue mix cannot emphasize the related themes, providing statistics on the revenue information related to the relevant themes can make the investors paying special attention to the relevant themes understand the company's achievements and strategies immediately. For example, if you would like to highlight the efforts and vision for sustainable growth, you might like to calculate the percentage of your overall revenue that your products and services account for what percentage of overall revenue today and also set long-term goals.
3) Referring to the industry supply chain and benchmarking against well-known peers: Many companies in Taiwan focus on niche markets with limited industry information, or new products and concepts. It is difficult for investors and the public to accurately understand the business nature and the industry, nor tie the company directly to the industry megatrends. Introducing well-known suppliers or customers, benchmarking industry leaders or well-known foreign peers may accelerate investors’ understanding of your company, utilizing their existing industry experience and knowledge to analyze the company more accurately. For example, 91 APP was just listed in Taiwan early this year. Many investors leveraged their knowledge of global listed peers such as "Shopify" and "Baozun" to compare and benchmark the company.
4) Adding keywords related to the relevant themes: These keywords could help improve the company image, and strengthen the perception of the companies being connected to the themes. For example, if you would like to strengthen the links to AI, using keywords such as "big data", "algorithm", "model", "smart", "massive", "data", "database", "innovation", "technology", "growth" or "creating value", etc. helps investors better find your company when they are looking for companies within specific themes.
5) Fully explaining why the themes are relevant to your company: Although sometimes the trends are obviously in favor of a company’s potential growth, investors cannot get the whole picture without the explanation from the company. For example, geopolitics and the trade war have changed the competitive landscape of many industries, creating business opportunities in the supply chain. Providing more industry knowledge and competition background are very helpful to understand the scale of the company’s impact.
It is important for listed companies and their IRO to communicate with investors accurately and effectively. QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. We help companies to formulate their strategies through our understanding of the industry and in-depth interviews with the management team. We also help facilitate the meetings with various types of investors. If you are interested in learning more about our services, please reach out to us.
Contact: yvonnehuang@qtumic.com
Sources：
1. Global Thematic Funds Landscape, Morningstar Manager Research, May 2021