What’s the retail investment sweet spot?

May 18, 2021
IR Magazine research indicates that 20 percent retail ownership is roughly when IROs would like fewer retail investors

New research into retail investor trends shows that while most companies (55 percent) are happy with their current levels of retail shareholdings, just over a quarter would like to see more retail investment.

So is there a sweet spot when it comes to how many retail investors hold your stock?

IR Magazine’s new Retail Investors research report, which examines retail investor trends and challenges, shows that more than a third of IROs in companies with up to 10 percent retail ownership would like to see more retail investment in their company. But nearly half of IROs in companies with more than 20 percent retail investment would like to see such retail investors hold fewer shares.

Overall, the research shows that the average proportion of shares held in a company by retail investors is around the 14 percent mark – compared with an average of almost 60 percent held by institutional investors.

Many companies say they’ve seen an increase in retail investment in recent years, however. Nearly three in 10 companies have seen an increase in retail investment in the past 12 months, while more than a quarter have seen an increase from three years ago. And much of that increase has been focused on small-cap companies.

Of all the cap sizes and regions studied, small-cap companies report the highest proportion of shares held by retail investors, at an average 23 percent. Forty-five percent of small-cap firms report an increase in retail holdings over the last 12 months.

Overall, the research finds that a perceived lack of knowledge, compared with institutional investors, is the biggest challenge posed by retail investors. But small-cap companies say communications is their biggest challenge when dealing with retail shareholders.

Numerous studies have pointed to an increase in retail investment as a result of the Covid-19 pandemic. An April study by Charles Schwab notes that for new ‘Gen I’ investors who entered the market in 2020, the biggest surprise during their first year of investing was ‘learning that investing is more about long-term gains then short-term wins’, with many investing in stock markets despite financial insecurity or big life changes on the horizon.

Click here for more information or to download the full Retail Investors report, which looks at the benefits and challenges of managing a retail shareholder base as well as how to better communicate with this growing group of investors.

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