Ian Cowie on the power of investment company shareholders.
Put your money where your mouth is. That’s a familiar concept to anyone who has put theory into practice financially.
Now rising numbers of investors are making our money matter by using it to express our opinions on everything from the environment to the ethics of various economic activities. Your individual savings account (ISA) or pension plan could be a force for good and a catalyst for change in the world, if that is what you want.
New technology and the ‘democratisation of finance’ is enabling more investors to invert the cliche and ‘put our mouth where our money is’. Old technology, in the form of Parliamentary legislation and property rights, gives shareholders substantial powers to put our views into effect on everything from executive pay to fossil fuels and gender equality. For more than a century, shareholders in investment companies have enjoyed the legal right to vote on how our assets are allocated. We are represented by a board of independent directors who have a legal duty to do their best to protect all shareholders’ interests equally and the power to hire or fire fund managers. We can attend annual general meetings (AGMs) and grill directors on the performance of their duties. At regular intervals, shareholders can vote to elect or sack these directors.
None of those rights is enjoyed by investors in other forms of pooled investment, such as exchange traded funds (ETFs) or open-ended investment companies (OEICs) or unit trusts. That’s a fact that may have seemed somewhat technical in the past but is now seen as important by increasing numbers of ethical investors who want our money to make a difference in the world, perhaps by cutting pollution with cleaner, greener energy; avoiding addictions to gambling or tobacco; or guaranteeing workers more job security and a minimum wage.
Never mind, for a moment, all the fuss about ‘financial flash mobs’ on antisocial media or the modish fascination with alternative assets such as non-fungible tokens (NFTs). Don’t ask. Well, if you insist, I would say NFTs are an unintended consequence of quantitative easing (QE) - or central banks pumping massive liquidity into the global economy - as all that extra money pushes up the price of everything, including digital assets such as art or music.
We might also discuss distributed ledger technology (DLT), which is the idea behind blockchain and the basis for all virtual currencies - including Ethereum, which aims to ensure each NFT is unique and non-exchangeable. Or we could simply dismiss day trading and NFTs as the sort of thing that happens when free money meets free time. Much more important to most medium and long-term investors is the preservation of our capital and its ability to generate growth and income. This is how rising numbers of us buy our homes and pay for children’s education and our own retirement. Digital technology makes it easier than ever for us to achieve those goals because of the unprecedented availability of financial information - news and views - in real time online.
When I began investing in the stock market via investment companies a quarter of a century ago, very little information was truly contemporaneous or ‘live’ because most of it had to be recorded and transmitted on bits of dead trees; better known as paper. This was often difficult to access in brokers’ offices and business libraries. Now masses of data - and the ability to act on it in a timely fashion - is available to all of us via online investment platforms. No wonder these platforms now hold over £200 billion on behalf of more than two million investors. Three of the biggest in Britain - Hargreaves Lansdown, interactive investor (ii) and AJ Bell - recently called on Parliament to do more to ensure individual investors enjoy equal rights alongside institutional investors when companies float on the London Stock Exchange.
The AIC is encouraging these platforms to do more to empower individual investors with its new Shareholder Engagement Award. The idea is to identify the platform that does most to keep investors informed about financial news and to encourage us to attend AGMs and vote.
Here and now, only a minority of shareholders exercise our votes or turn up to meetings. All three of Britain’s biggest investment platforms offer free voting services but each of them told me that few clients express much interest. For example, ii reports that only a quarter of its clients have registered to vote and just 8% of them actually did so last year. Even so, apathy about the allocation of our assets is changing as ethical, environmental and younger investors become more of a force in the market. That process is accelerating as investment companies and investment platforms encourage shareholders to engage with equities and make our views known.
As in other walks of life, folk who don’t vote are effectively demanding to be ignored. Don’t disenfranchise yourself; equities can empower every shareholder, big or small. We can do well by doing good and make our money matter.