US investment community divided over use of excess cash

The US buy-side community is more concerned than the sell side about companies sacrificing long-term organic growth in favor of share buybacks, according to a recent survey carried out for the IR Magazine Investor Perception Survey – US 2016. 

In a telephone survey, Mary Maude Research asked 104 investment community members (41 buy side, 63 sell side) about their attitude to share buybacks: 41 percentof buy-side respondents say they are concerned about the issue, compared with just 25 percent of sell-siders. ‘I think they are [doing buybacks] and it’s because there’s a lot of pressure on companies from shareholders,’ says one buy-side respondent. 

Despite this, almost a quarter of respondents (23 percent) think companies with excess cash should use it on buybacks. A third think the cash should be used for long-term organic growth and R&D, and 15 percent say it depends on the company. 

Meanwhile, the biggest macroeconomic concern for the community is interest rates, with 28 percent of respondents saying it is their top anxiety at the moment. ‘My main concern is the US Federal Reserve’s interest rate policy vagueness,’ says one buy-side respondent. Other major sources of macroeconomic apprehension for the community include growth rates (18 percent) and commodity prices (14 percent). 

An overwhelming majority of respondents (86 percent) would like companies to tell them how they think macroeconomic issues will affect them rather than relying on their own judgment. ‘It’s useful to know their thoughts,’ says one member of the buy-side community. ‘I don’t have to agree or take heed, but it’s useful to know.’  

Click here to download the IR Magazine Investor Perception Study – US 2016.