By David Coe, managing editor of Investor Torque
More and more institutional investors are using social media professionally and making investment decisions based on it.
They are forming an invisible tide that is sweeping through financial markets and transforming the way listed companies talk to investors.
As several global surveys have shown, the tide is invisible largely because institutional investors are quiet consumers of social media content rather than egotistic creators of it. They are listening, not talking.
Their use of social media complements retail investors’ use of social media as a research tool as well as the growing trend by listed companies to communicate with investors – not just customers – with social media.
Almost 80% of institutional investors admitted to the internationally renowned Greenwich Associates that they used social media as part of their regular work flow when the firm surveyed corporate and public pension funds, insurance companies, endowments and foundations in the US, Europe and Asia.
About 30% of the investors told Greenwich that information they received through social media had directly influenced an investment decision.
The investment companies that Greenwich surveyed varied in size from under $250 million in assets to over $10 billion.
Channels of influence
A second global survey of institutional investors, this time by the Brunswick Group, revealed:
· 77% were prompted by social media to investigate an issue,
· 41% made an investment decision based on social media.
The investors were asked which social channels had influenced their investment decisions and:
· 29% said company blogs,
· 17% said SlideShare,
· 13% said Twitter.
Not surprisingly, 2 out of 3 British stockbrokers say social media now influences share prices.
This is supported by Stanford University research. It showed that listed companies which use social media to extend the reach of official announcements get to more investors, and this in turn resulted in greater market liquidity and tighter bid-ask spreads.
The strong interest in social media among institutional investors also supports Bloomberg’s decision to feed more Twitter data to clients who pay $25,000 a year for its terminals.
For 3 years, Bloomberg has been feeding tweets from large companies, officials at central banks, government ministers, executives, economists and leading financial bloggers to its clients. Now the tweets will come paired with sentiment analytics as well.
Bloomberg’s global head of product told Fortune magazine: “Our customers have told us that Twitter helps them uncover early trends, breaking news, and sentiment shifts.”
A quant trading Bloomberg client was quoted as saying: “Twitter is an irreplaceable tool given the market impact it has.”
A look at the stats for individual channels shows just how quiet institutional investors are when they use social media. A total of 52% read company blogs but only 11% write their own; 30% follow others on Twitter but only 8% tweet themselves.
Retail investors are also embracing social media. They manage their portfolios online, transact online and research online.
Stock exchanges go social
With the use of social media by both institutional and retail investors mushrooming, companies are embracing it as a way to be heard, known and understood by the financial markets – particularly junior companies that struggle for broker and press coverage.
They are providing the content that investors are looking for.
And stock exchanges are getting in on the act too.
First the New York Stock Exchange started giving social media tips for listed companies to reach investors direct. More recently, it has begun offering social media to help small and mid-cap companies get their news to investors as part of a service package that specifically meets the needs of small to mid-cap companies.
The Nasdaq also creates social media campaigns to support the IPOs of companies it floats.
Now the Chicago Board Options Exchange is creating benchmark indexes based on social media sentiment.
Surveys show 88% of global companies use LinkedIn for investor relations, 63% use Twitter, 44% use SlideShare, 40% use Facebook and 29% use YouTube.