Over the last decade, various regulatory adjustments have dramatically changed the buy-side/sell-side scenario and how companies interact with both sides of The Street. In 2000, the SEC adopted Regulation FD, which aims to promote the full and fair disclosure of information by publicly traded companies. Two years later, Sarbanes-Oxley mandated reforms to enhance corporate transparency and reduce conflicts of interest among securities analysts. Crucially, today, management teams need to provide the same information to both sell- and buy-side analysts.
The following are a few tips to help you better manage your analyst relationships:
Keep the talking points consistent between the sell-side and buy-side analysts. Regulation FD mandates that you treat both sides equally. Be straightforward, transparent and candid with both. Shareholders that receive different information from the analysts will take this as a red flag.
Appreciate the nuances between buy- and sell-side analysts. It’s important to understand that buy- and sell-side analysts have different jobs and play different roles. For instance, the sell-side analyst needs to have a price target over the next year. The buy-side analyst may create a target price over the next three years. As a result, each may interpret the exact same information differently. Continue Reading
Some management teams are reluctant to meet with hedge fund managers. While planning a road show or conference appearance, they try to meet with “long only” fund managers. While I can understand that management teams are reluctant to meet with hedge fund managers out of fear of a tense line of questioning or some form of brow beating during the meeting, the reality is that you can’t (and shouldn’t) avoid these meetings. The sheer number of hedge funds is staggering and almost $2 trillion dollars are under management within these funds.
Following are the top ten positive reasons management teams and IR professionals should keep hedge funds on the schedule:
Don’t judge the book by its cover. Hedge funds come in a variety of flavors. Funds can differentiate themselves by investment style, sector focus, geography, market cap, market neutral, long/short, etc. You may even be surprised to learn that some hedge funds are long-only or exclusively long-term oriented.
Despite their depiction by the popular press, not all hedge fund managers are “bad guys.” Many hedge fund managers are smart, considerate, thoughtful, long-term investors. Don’t let the structure of their fund dictate if you meet with them. Continue Reading
Our clients often ask, “Why did account X sell my stock? Our last meeting with them went so well.” Generally speaking, there is one reason investors buy a stock: the assumption that its price is going up. There are, however, countless reasons why stocks are sold. Sometimes when a company’s fundamentals seem to be improving it’s not always clear why a portfolio manager might sell a particular stock. We want to shed some light on the factors that can lead to the “sell” decision via this month’s Top 10 list.
Locking in gains. No one has ever been fired for locking in gains. Even an investor who’s held your stock for years can’t be faulted for taking some money off the table.
Macro concerns or sector rotation. Even for a company that derives zero revenue from Europe and does not sell directly to the federal government, events like foreign debt defaults and sequestration cause fund managers to lighten up on stocks. In uncertain times, cash is king! Similarly, depending on the outlook of the firms’ economist, portfolio managers shift money between sectors, increasing and decreasing their exposure based on the economists’ suggestions. If healthcare is deemed an underperforming sector at a particular time, your stock might be caught in the sector rotation. Continue Reading