Stock market value by sector (2015)
Technology is a tiny part of the investable share universe in the UK, and across Europe, and so of course fund managers have little time to devote to the sector. Listed tech company execs should stop complaining that investors don't understand them and do two things: alter their communications strategy to take account of the fleeting time local investors have to give them, and target US investors who better understand technology and growth stocks. This does not mean listing in the US (stock exchanges are not marketing tools), it means behaving more like a US tech stock.
In
a series or articles we run through these points in model detail, starting with
the investable universe.
UK investors likely
spend half a day a year on the sector
There are about 220 working
days in a year. Fund managers probably spend 25% of their time marketing their
funds to their clients and perhaps 50% keeping up to date with their portfolio
of existing investments and other "running the fund" activities. This
leaves 55 days a year to work on new investment opportunities.
If a fund manager has
invested in a consumer goods company, it is much easier for her to do the
groundwork on another consumer goods company than in a sector she doesn't know
so well. These comfort zone sectors tend to be the biggest ones (by market
value) that contain the largest number of companies to invest in and the
highest liquidity. The largest UK sectors are Financials, Consumer Goods,
Consumer Services, and Oil & Gas. Fund managers have to know these sectors
well and so time spent researching companies in these sectors is more
efficient, because they already know the basics.
Technology represents 1% of market value in the UK
Unfortunately for the Tech
sector, it is just 1% of the UK market by value. So even if investors allocated
their 55 days of new company research time evenly across the sectors weighted
by sector value, Tech would get just half a day a year.
Even if a fund manager
decides they need exposure to the Technology sector, they will still prefer more
mature, profitable Technology companies than earlier stage, high-growth but
loss-making businesses. Technology sector followers will be aware that this is
part of a broader problem at all stages of financing in Europe (from Angel and
seed funding to the early, mid, and late stage Venture Capital funding rounds)
but it is the latest stage of all, stock market flotations and listed
companies, that this article focuses on.
Technology is a much more important sector in the US
Compare UK technology
market capitalisation to the US, where Technology represents 17% of the S&P
500 index. Not surprisingly US investors are far more willing to invest in
Technology stocks. They have to be, it is a sector that cannot be ignored.
Don’t blame the UK fund manager
So blaming the investment
community for not understanding your business is a fruitless pursuit. They are
just being commercial. The solution is two-fold: accept that European based
investors will only become more technology-literate when the sector is more
important to them, and in the mean time hone your UK communications to be
effective for a time-pressed fund manager. The second approach is to seriously
target the US investment community. In future articles we well cover the do’s
and don’ts of how to find US investors who might care about your business.
Andrew Griffin spent almost
two decades as a technology equity analyst before working as investor relations
and market intelligence director for a UK listed software company. In 2015 he
set up Oakhall to help European growth companies with strategy, investor
relations, corporate development and financial planning & analysis.
© Oakhall Ltd 2015 www.oakhalladvisors.com
