Advisory intelligence: How IR professionals can stay nimble in the evolving technology sector
While the technology sector has led the market so far this year, the headline performance masks a more nuanced reality – much of the performance has been driven by some of the largest and more established sector names, notably Facebook, Apple, Microsoft, and Alphabet.
Historically, the technology sector was confined to companies across the spectrum of hardware, software and services. But defining today’s technology sector is far more complex, observes Lauren Elkin, director of the technology, media and telecom practice at Nasdaq Advisory Services.
'The sector has become somewhat ambiguous, more of a grey area. The digital revolution is creating overlapping sub-sector categories, each with its own competitive dynamics and investment indicators,' says Elkin. Subcategories encompass a diverse set of industries. Elkin noted there is naturally more overlap and subsectors, which now include advertising tech, education tech, financial tech, retail and consumer, cloud computing and healthcare. 'With so many companies overlapping technoloy, the common denominator no longer exists that unites all technology investments,' she says.
Furthermore, a constant flow of industry data, news and analyst opinions crosses traditional media channels and social media outlets. In this multi-layered and fast-moving environment, tech company IROs are challenged to understand what’s important in the industry where they actually compete. This type of landscape analysis can help IROs to effectively communicate their company’s story and strategy to the right investment decision makers, Elkin adds.
Nasdaq’s Advisory Services analysts not only monitor trading activity in a client’s stock and peers, but also get behind the trades to understand what’s driving the activity. Elkin comments that understanding not just industry trends but also the market context is a key part of that discussion with clients. The market’s continuing migration toward lower-cost and more passive investing, from indexes and exchange-traded funds to quants, has increased pressure on active managers to justify their fees by showing outsized performance.
In the current hot tech space, a manager may be tempted to sell a high-flying stock ‘just to book the profits and and realize gains,’ Elkin says. What’s more, this performance pressure increases managers’ tendency to move from ‘active’ to ‘activist’ investors, so IROs need to ensure they understand the nature of the investors they are speaking with as well as be mindful of increasingly vocal passive managers when communicating company strategy.
Evolution in the technology sector and among asset managers are challenging IROs to stay on top of the evolving landscape, effectively communicate their strategy, and maintain and target long-term investors. Targeting investors in this multi-category environment requires an in-depth focus on true competitive peers, disaggregating revenue streams and digging into behavioral preferences of specific individual managers, Elkin says. 'Identifying investors that may be rotating in and out of certain sectors or geographic regions can also enable IROs to get ahead of a trend, targeting managers who are receptive to the corporate profile,' she noted.
The ultimate goal of Nasdaq Advisory Services is to help IROs 'drive long-term investments in a short-term world,' Elkin concludes.
This content was produced by Nasdaq Corporate Solutions and first appeared on Nasdaq's website.