With several months of living and working in a global pandemic under our belts, we wanted to look specifically at the role surveillance has played in helping clients navigate these uncertain waters and preparing for the future. To get to these observations, we connected with Q4’s team of surveillance analysts, led by Billy Eckert.
Billy shared some very interesting perspectives from his team, who have identified four key areas where Q4 clients are leveraging surveillance to help mitigate some of the uncertainty ahead.
Focus on Activism
While we’ve seen the market, and particularly tech, come way back since it’s March lows, those still underperforming, despite a rebound in their sector or peer group, may be seen as a value opportunity, and therefore a target for activist campaigns.
“Surveillance is the best and primary defense as far as getting an early warning on activism,” says Billy. “Surveillance analysts leverage tools like web analytics and trading reports, but the primary tool for early detection of a threat is closely monitoring bank flows.”
Especially in volatile markets, IROs with a hypersensitivity to activism lean on these analysts to discern the presence of a potential threat as early as possible. In one recent example of this, a Q4 client reached out to its surveillance team following a conversation with a known activist investor who had conveyed some disapproval with management. Because some of their other investors speak with this activist, this large-cap SaaS player called in Q4 to take a deeper look. The team of experts immediately prepared reports on bank flows to help identify activist movement and determine whether the client had cause for real concern.
“This data serves as an insurance policy in the marketplace to help confirm whether you have something to worry about and need to rally the troops ahead of a campaign or convey that surveillance isn’t showing anything indicative of an activist campaign.”
Measuring the Effectiveness of Virtual NDRs
Given the impact of recent travel restrictions and reduced budgets, virtual NDRs have become a key strategy for engaging with investors. As a result, measuring the effectiveness of these virtual roadshows has become a critical role of surveillance analysts and an increasingly important aspect of the overall IR program.
“Surveillance can be extremely effective in measuring the value of your NDRs,” explains Billy. “With knowledge of who management has met with, analysts can regularly monitor institutional inflows and cross-reference with the banks used by those investors. This allows us to identify which meetings result in institutional investors taking a position in the stock. Surveillance can also highlight what the company’s peer group did in that same time to determine if there’s any sort of rotational trading in the sector or any other color worth providing.”
Billy adds that strong surveillance analysts can help IROs keep a finger on the pulse of what their investor base looks like and how it can evolve. These efforts can enable a better understanding of how shareholder composition might change based on what’s happening in the marketplace, sector and importantly, how your individual story is resonating.
Better Understanding the Markets
Billy and his team have found that one of the most valuable things surveillance has to offer during this time is a better understanding of what’s happening within the market. In constantly monitoring and analyzing market movement, for instance, Billy can provide IROs with important insights around the broader market as well as within their sector or peer group.
“We’ve seen and learned a lot being immersed in the market over the past several months,” says Billy. “On the way down, we observed that a lot of the downward movement was actually driven by the hedge funds, where fast money reacted to the negative sentiment around COVID-19 and essentially de-risking. During that same time, big or smart investors were looking at the value. On the run back up, we saw the opposite, including a combination of fast money and retail investors getting back into the market as they saw the momentum going the right way, and then institutional investors moving into the stocks they liked because they still saw some value opportunity.”
Assessment of rotational trades and other market activity, as well as analysis around why sectors outperformed or underperformed, can help arm IROs with the information they need to explain these market movements to their management and board. Better understanding the market and where they sit within it is especially valuable for IROs who may not be as fluent with technical levels or haven’t historically monitored markets on a minute-by-minute basis the way a highly volatile market requires.
“This isn’t like any market we’ve ever seen before, and clients want to know, more than ever, what’s happening with their stock,” says Billy. “Our custom-tailored surveillance reports help IROs better and more quickly understand what we’re seeing.”
Supporting Earnings Preparation
As with nearly every other IR strategy, the global pandemic has changed the way IROs prepare for earnings. Surveillance plays a key role in earnings preparation in highlighting market and sector movement in the days and weeks leading up to your report. Even well ahead of earnings, surveillance can help IROs identify and select a date that doesn’t conflict with peer reporting, which can mitigate distractions from their message.
Billy shares that one of the surveillance reports that receives the most positive feedback is his team’s pre-earnings report, which essentially summarizes what the street is expecting. He explains: “The report shares a host of valuable data, including implied options volatility to provide an idea of what the street is expecting as far as price reaction, what we’re seeing in terms of who is buying and selling ahead of earnings, a look at the technicals, and what short interest has done leading up to the event. We can also provide any important feedback from peers who have reported earlier, including – what was announced and how it was received. Each of these data points can help IROs and management teams understand where the stock might go and prepare accordingly.”
To learn more about how data can help drive impact for your IR program, check out the joint webinar from Q4 and IR Magazine, The Power of Data for Your IR Program.