Market Volatility – How Risk Management Relates to Investor ExpectationsPRESENTED BY JASON STOKES, SALES MANAGER, CORPORATE6th DECEMBER 2011
LIGHTNING IN ALBUQUERQUEREUTERS/University Of Essex
EARTHQUAKE IN CHILE REUTERS/University Of Essex
NATURAL DISASTERS
REUTERS/University Of Essex
MARCH 2011
EUROZONE FINANCIAL CRISISREUTERS/Brendan McDermid
SEPTEMBER 2011
CYBER ATTACKS.REUTERS/Brendan McDermid
AUGUST 2011
REGULATORY CHANGES AND
GOVERNMENT POLICY
REUTERS/Molly Riley
ANTICIPATING THE NEWS
AND PLANNING, WHATS NEXT?
REUTERS/Regis Duvignau
WHAT’S NEXT?
Source: Thomson Reuters Datastream
-50 0 50 100 150 2005Y % change
0.05
0.10
0.15
0.20
0.25
0.30
0.35 5 Ye
ar V
olat
ility
S&P/ASX 200
BHP BILLITON
WOOLWORTHS
AU BENCHMARK 10 YEAR DS GOVT. INDEX
US $ TO AUSTRALIAN $ (WMR)
Gold Bullion LBM U$/Troy Ounce
MSCI WORLD U$
THE PAST 5 YEARS VOLATILITY V % CHANGE
THE IMPORTANCE OF MANAGING YOUR INVESTORS• SPELT Risks abound, but specifics include
• Currency fluctuations
• Predatory M&A activity
• Funding and debt
• Market perception
• Regulatory
SP/ASX 20
Accumulation index
<.ATLIA> to proxy
firms with Good risk
management (Safe
Firms) SP/ASX Small
Ordinaries
<.AXSOA> to proxy
firms with less risk
managements (Risk
Firms).
Add the Volatility Index <.VIX>
Spread chart of the two returns, which represent how
much the Safe Firms outperform the Risk Firms
(Outperformance).
When there is a spike in the VIX, Safe Firms outperform
more than those times when market is less volatile.
SOURCE: THOMSON REUTERS EIKON
UNDERSTANDING YOUR INVESTORS
TOP 20 HOLDERS ON A SHARE REGISTER• Do you know who owns your company?
• Can you name the Top 10 Investors?
• More importantly, do you know why they’re holding?
THE SHARE REGISTER ANALYSIS PROCESS• Most registers dominated by “nominees”
or “custodians” – e.g. HSBC Custody Nominees, JP Morgan Nominees
• Majority of institutions hold through nominees and therefore hidden / unidentified
• Obtain a copy of the register and identify registered holders holding stock as nominee or custodian for other parties
• Send s672A disclosure requests to nominees
• Issue disclosure requests to sub-nominees
• Analyse information to unveil fund managers and beneficial holders
THE SRA PROCESS - LEGISLATION• 672A Disclosure notices
(1) ASIC, a listed company or the responsible entity for a listed managed investment scheme, may direct:…under section 672B as having a relevant interest in, or having given instructions about, voting shares in the company or interests in the scheme;
…to make the disclosure required by section 672B.
• A person has a relevant interest in securities if they: – (a) are the holder of the securities; or – (b) have power to exercise, or control the exercise of, a right to vote attached to the securities;
or– (c) have power to dispose of, or control the exercise of a power to dispose of, the securities.
It does not matter how remote the relevant interest is or how it arises. If 2 or more people can jointly exercise one of these powers, each of them is taken to have that power.
THE SRA PROCESS - LEGISLATION• Other relevant sections:
– information must be given within 2 business days (s672B(2))
– prescribed fee payable per notice issued (s672B(2)(c), s672D)
– register of information about relevant interests must be kept and can be inspected or a copy requested (s672DA)
23
SAMPLE RESULTS OVERVIEW• Thomson Reuters identified 302 institutional shareholders holding 148,202,219 shares across 24 countries. This represents 26% of the shares outstanding or 65% of the
free float. Overall, the number of shares held by institutional investors has increased by 2.7 million shares, an increase of 2% compared to the previous quarter.
• The top ten investors remained fairly stable with only 2 new entries: UBS Global Asset Management (Switzerland) and Amundi Asset Management. This Paris-based,
Growth investment advisor has been buying XYZ’s shares since December 2008 and has increased its position by 470%.
• London based hedge funds are the main sellers over the last three months as hedge funds overall decreased their exposure to the stock by 24%.
• Value investors remain the leading investment style group, followed by growth and index investors.Top 10 Holders Top 5 Buyers and SellersRank Name % S/O Mar-10 Net Change Rank Name % S/O Mar-10 Net Change
1 Parvus Asset Management (UK) LLP 1.75% 10,000,000 ▼ (490,000) 1 UBS Global Asset Management (Switzerland) 1.09% 6,237,679 ▲ 5,891,787
2 Norges Bank 1.63% 9,315,602 ▼ (534,398) 2 BNP Paribas Asset Management S.A.S. 0.51% 2,916,307 ▲ 2,108,998
3 UBS Global Asset Management (Switzerland) 1.09% 6,237,679 ▲ 5,891,787 3 Amundi Asset Management [4] 0.62% 3,573,096 ▲ 1,421,593
4 BlackRock Institutional Trust Company, N.A. 1.05% 5,996,164 ▼ (569,731) 4 Macquarie Investment Management Ltd. 0.31% 1,785,365 ▲ 1,054,658
5 Fortis Investments 0.91% 5,198,000 0 5 Federal Finance Gestion 0.16% 938,500 ▲ 938,500
6 State Street Global Advisors (US) 0.90% 5,126,700 ▼ (223,300) 1 Egerton Capital Ltd. 0.63% 3,620,000 ▼ (3,948,975)
7 Fidelity International Limited 0.84% 4,825,900 ▲ 840,200 2 Pictet Asset Management Ltd. 0.00% 1,104 ▼ (1,516,397)
8 BlackRock Advisors (UK) Limited 0.76% 4,356,344 ▼ (413,922) 3 Artio Global Management LLC - 0 ▼ (1,335,000)
9 Egerton Capital Ltd. 0.63% 3,620,000 ▼ (3,948,975) 4 ING Investment Management (Netherlands) [11] 0.03% 200,000 ▼ (742,000)
10 Amundi Asset Management [4] 0.62% 3,573,096 ▲ 1,421,593 5 Artemis Investment Management Ltd. - 0 ▼ (632,592)
8%
27%
19%
11%
21%
14%
Value
Growth
Index
GARP
Hedge Fund
Other
8%
29%
17%8%11%
19%
8%
United Kingdom
United States
France
Italy
Switzerland
Rest of Europe
Rest of World
26%8%6%
60%
Institutional
Strategic Holdings
Retail/Unidentified
Other Filings
Total Shareholder Composition Institutional Shares by Geography Institutional Shares by Investment Style
SOURCE: THOMSON REUTERS SHARE REGISTER ANALYSIS
INVESTOR STYLES
• Investment Styles
• Aggressive Growth
• Broker Dealer
• Core Growth
• Core Value
• Deep Value
• Emerging Markets
• GARP
• Growth
• Hedge Fund
• Income Value
• Index
• Momentum
• Sector Specific
• Specialty
• VC/Private Equity
• Yield
INVESTOR TARGETING ANALYSIS• Identifying prospective investors with the greatest propensity
to hold your stock company – hence maximising management time
• Utilise information to organize investor roadshows
• Use this as a screening tool to filter meeting requests
• Compare your shareholders against the shareholders in peer companies using information obtained under s672DA register of information about relevant interests
• Access publicly available information on institutional shareholdings in companies worldwide
26
SAMPLE INVESTMENT STYLE ANALYSIS
• Over the last 3 months value investors increased by 20.6% and strengthened their position as XYZ’s largest investment style group, as they currently account for 27% of the total shares identified. The sharp raise of
value investors should be analyzed in consideration of the fact that 77% of the increase is accountable to the large buying from UBS Global Asset Management (Switzerland). As we discussed, this is the result of the
internal reshuffling of XYZ’s shares amongst different division of the UBS group rather than a genuine buying motivated by current favorable stock valuation.
• Index investors decreased their exposure to the stock by 8%, declining at a similar pace observed during the previous quarter when index investors sold overall 7% of their stake. This is not surprising given the fact
the XYZ’s share price dropped 5.3% over the last three months and it underperformed the FTSE MIB index by 4% in the same period. It is also interesting to note that the US based BlackRock Institutional Trust
Company and BlackRock Advisors (UK) Limited decreased their respective holding exactly by 8.7% whilst the corresponding subsidiaries of the State Street group decreased their positions by around 4.5%.
Stock MetricsPerformance 3-Month -5.3%Performance 6-Month 4.3%Performance 12-Month 51.8%P/E 12.3P/B 2.3PEG 3.9DY % 4.5%
Current Split8%
27%
19%
11%
21%
14%
Value
Growth
Index
GARP
Hedge Fund
Other
Price (€)
8
12
16
20
% of Identified Institutional Owners by Style
Value
GrowthIndex
GARPHedge FundOther
0%
5%
10%
15%
20%
25%
30%
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
+32%
SOURCE: THOMSON REUTERS SHARE REGISTER ANALYSIS
27
HOLDERS BY GEOGRAPHY
NOTE: Bubble size represents the Current Holdings while the colors represents the Net Change.
India0.49M = UNCH1 Holder
Slovenia0.15M = UNCH2 Holders
Canada1.28M ▼ (0.01M)33 Holders
United States46.31M ▲ 3.53M413 Holders
Australia135.47M ▲ 3.35M422 Holders
Singapore8.48M ▲ 0.22M28 Holders
New Zealand0.81M ▲ 0.81M6 Holders
Japan3.57M ▲ 0.01M117 Holders
Hong Kong3.23M ▲ 0.14M26 Holders
UAE0.77M ▼ (0.35M)4 Holders
United Kingdom11.63M ▲ 0.79M129 Holders
Ireland0.63M = UNCH23 Holders
Norway1.01M ▲ 0.01M4 Holders
France0.20M ▼ (0.13M)10 Holders
Switzerland0.74M ▼ (0.02M)23 Holders
Luxembourg3.09M ▼ (0.20M)14 Holders
Germany3.14M ▲ 2.62M34 Holders
Netherlands0.42M = UNCH10 Holders
Korea (South)0.12M = UNCH1 Holder
Malaysia0.22M = UNCH1 Holder
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MANAGEMENT REPORTING• Boards are elected by investors and naturally have an
interest in investor sentiment
• Qualitative measures include:– Report top holders (beneficial / underlying) rather than top registered holders
(typically nominees)
– Report major movements on the register
– Share price performance and trading activity
– Retail vs institutional splits and changes
• Qualitative comments:– Investor feedback from meetings
– Market commentaries
– Broker comments
• Act as the conduit for information flow between the market and the company
CORPORATE GOVERNANCE / AGM• Understanding your investors will be the basis for a successful
outcome at the company’s Annual General Meeting (AGM)
• Ensure the dissemination of meeting information to the underlying investors and not merely to the nominees
• Consider soliciting investor support through proxy votes particularly where voting exclusions or contentious resolutions are being considered
• Engage with shareholder groups (ASA, corporate governance advisors)
• Remember : Investors control the outcome of a meeting – shareholder activism and corporate governance is on the agenda
UNDERSTANDING THE MARKET, MARKET VOLATILITY, AND BEING PROACTIVE
EQUITIES
NEW YORK - U.S. stocks ended flat on Friday but capped the best week for Wall Street bulls in almost three years after data showed the U.S. unemployment rate dropped to a 2-1/2 year low.
The Dow Jones industrial average .DJI dipped 0.61 point, or 0.01 percent, to 12,019.42. The S&P 500 .SPX shed 0.30 point, or 0.02 percent, to 1,244.28. The Nasdaq Composite .IXIC edged up 0.73 points, or 0.03 percent, to 2,626.93.
For a full report, double click on .N
- - - -
LONDON - Britain's top shares posted their highest weekly percentage gain since January 2009, buoyed by central banks' moves to boost liquidity and prospects for next week's key summit to tackle the euro zone debt crisis.
The FTSE 100 .FTSE closed up 62.95 points, or 1.2 percent, at 5,552.29, bouncing back after Thursday's 0.3 percent slip in the wake of Wednesday's 3.2 percent jump. Over the course of the week, the index firmed 7.5 percent.
For a full report, double click on .L
- - - -
TOKYO - The Nikkei average extended gains to log its biggest weekly advance in two years on Friday, though the mood was far from upbeat given uncertainty over whether Europe will next week manage to cobble together steps to counter the debt
crisis there.
The benchmark Nikkei .N225 added 0.5 percent to 8,643.75,
for a weekly gain of 5.9 percent, its biggest since the first week of December 2009. In one positive technical sign, the Nikkei stayed comfortably above its 25-day moving average, at 8,573.
For a full report, double click on .T
- - - -
SYDNEY - Australian shares are likely to open steady on Monday, holding ground following a 7.6 percent jump last week ahead of a European Union summit, while encouraging data showed U.S. unemployment fell to a 2-1/2-year low.
Stock index futures YAPcm1 slipped 0.1 percent to 4,295.0, a 7-point premium to the underlying S&P/ASX 200 index .AXJO. The benchmark rose 1.4 percent on Friday, capping the strongest weekly gain in three years.
- - - -
GET THE HEADS-UP
THE VIX IS A GOOD EARLY (ISH) INDICATOR
SOURCE: THOMSON REUTERS EIKON
ALSO ITRAXX CDS INDEX
SOURCE: THOMSON REUTERS EIKON
Source: Thomson Reuters Datastream
Price and Volatility ChartAU BENCHMARK 10 YEAR DS GOVT. INDEX
2010 2011150
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14x 0.01
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Price20 Day Moving Average50 Day Moving AverageHistorical Volatility (30 Weeks)
Source: Thomson Reuters Datastream
Price and Volatility ChartUS $ TO AUSTRALIAN $ (WMR)
2010 20110.80
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Source: Thomson Reuters Datastream
Price and Volatility ChartGold Bullion LBM U$/Troy Ounce
2010 20111000
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2000
2010 20110.05
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Price20 Day Moving Average50 Day Moving AverageHistorical Volatility (30 Weeks)
37
CARBON TRADING
SOURCE: THOMSON REUTERS EIKON
KEY TAKEAWAYS
1. You can’t control the market volatility, but you can mitigate the risk and outperform your peers
2. Understand your Investors– Current holders model – focusing on opportunity and risk in your
existing shareholder base, and understand what their drivers are
– New purchasing model – focusing on investors with no current equity holdings in your company, targeting those that suit your fundamentals
3. Monitor the issues, and be proactive with your stakeholders, especially with any change in your fundamentals
Jason StokesThomson Reuters Corporate
Phone: +61 2 9373 1948Mobile: +61 402 851 923Level 10, 60 Margaret St
Sydney NSW [email protected]
QUESTIONS AND COMMENTS
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