Cutting Through in Challenging Times

Recent weeks have seen turmoil in the UK’s financial markets. Rocketing gilt yields; volatile Sterling; panic amongst pension funds; an intervention by the Bank of England; and at least two government policy U turns.

Yet, the UK equity market is down only 11% this year, materially outperforming many of its international peers (the S&P 500 is off nearly 25% over the same period). The reason? The UK is being propped up by heavy weighting of large sectors such as Oil & Gas and Financial Services, which are benefitting from the current economic environment.

But this masks a much more challenging underlying picture. The FTSE 250 – a better proxy for the UK economy – is down nearly 30% in 2022, with consumer-related and technology sectors particularly weak. The mood of the UK fund managers we have spoken to is downbeat. Performance is understandably poor and portfolio positioning is a challenge. And even if they spot a buying opportunity, record outflows from UK equity funds make it harder for them to back their convictions.

As a result, many companies are left feeling that their shares are meaningfully undervalued, that their strategic progress isn’t being recognised, and that attracting new investors has become difficult. So, how can you cut through at a time like this and best position yourself for when the upturn comes? We have five recommendations:

  1. Differentiate yourself. A compelling corporate narrative is key, explaining why you are better placed to succeed than the competition. A good narrative sets the context for the company, helping followers to understand why your product or service is the right one for your customers.
  2. Repeat, repeat, repeat. Portfolio managers are time-poor. They spend much less time looking at individual companies than you might expect. Even though you may feel the investment case is clear, you need to explain it and reinforce it at every turn.
  3. Create a drumbeat of news flow. The reporting calendar provides relatively few opportunities a year for proactive communication. Make sure that you are finding every opportunity to tell your story in between: newsletters, investor seminars, site visits, LinkedIn posts and media engagement.
  4. Don’t give up on sustainability. Although the debate is evolving – and, in harder economic times, the detractors have become more vocal – sustainability remains an important criterion for investors. Sustainability is most exciting when it is a driver of growth, rather than just a means of mitigating risk.
  5. Do-It-Yourself. This is not an environment in which it is going to be easy to attract new sell-side followers. In the absence of others promoting your story on your behalf, you need to ensure that your materials are crystal clear and that you are marketing directly to investors.

While none of these recommendations will be a panacea, and the current environment certainly makes it challenging for companies to make themselves heard, doing them in combination should create the greatest possible chance of success.