More Active ETFs Coming, and How to Build Trust
Week Ending 13 December

We've heard effective time management defined as a classification exercise in a 2x2 box, with "important / not important" and "urgent / not urgent" labeling the two axes. Obviously, important / urgent items drive most of your day-to-day work, and hopefully not important / not urgent items can be delegated...but we'd say the week of December 13 and December 20 are the two best weeks of the year to attack those important / not urgent items that are hanging out on the bottom of your "Tasks" section in Outlook. Rethinking your investor deck to include those concepts from your R&D team?  Getting those first templates together for your investor day presentations?  Barring anything big happening in the world, this is the time to get those done without a million investor calls cluttering the schedule.  

We can debate with you where the The Autocorrect sits on that scale - but we'd contend that, no matter what, it's important to get caught up, and get back to the rest of your big 2019 projects as the calendar grows thin.


- The zeitgeist for the last several years would suggest that the massive shift to passive investments from active is entirely driven by a flight to lower fees for passive products; we might contend that a strong secondary consideration is the flight to liquidity that’s inherent in the ETF structure. The ability to enter and exit ETF positions almost instantaneously is a huge advantage over traditional active mutual funds – and active managers are finally starting to get the tools they need to enter the ETF space and fight back. We’re neutral observers in this struggle of course, but from a shareholder intelligence perspective, we’re curious about position transparency requirements for each fund. We’d previously covered the Precidian ActiveShares structure in the April 12 Autocorrect – which the SEC had approved and would be entirely non-transparent for holdings, but would require a third party to publish NAV’s every second; needless to say, this may not be the most attractive structure for investors looking for trust in their ETF provider. 

This week, the SEC announced it would approve four new structures of actively-managed ETFs that would offer different types of position transparency, as proposed by T. Rowe Price, Fidelity, Natixis, and Blue Tractor (P&I coverage).  Each of these take a slightly different approach: Fidelity’s proposal would have the fund disclose a “tracking basket” of securities designed to trade within a close range of the overall portfolio’s combined NAV’s, Natixis’ would disclose a sample portfolio that would be “overinclusive” and contain more securities than the actual portfolio, with the option to reflect actual security buying and selling from 5 to 15 days after the completed trades. T. Rowe’s sample portfolio would contain an 80% overlap with the underlying portfolio’s securities. Regardless, if these portfolio strategies launch and start to attract enough assets, it could cause some interesting issues with position disclosure. No cause for alarm yet, but we’ll keep an eye on these developments as they progress.

The Autocorrect Poll 

Based on our conversations with clients, this seems to be the week when companies flip the calendar over to 2020 and start penciling in their travel schedules for the upcoming year. (Except for you healthcare companies - JPMorgan is now just a scant few business days away...) As the impact of MiFID progresses into its third year, we're hearing a lot more from companies that are planning their own face-to-face meetings with major buy-siders, who in at least a few cases have stated they don't intend to work with brokers for nearly any corporate access with issuers in the upcoming year.  Seems like a good time to ask the Autocorrect audience to help all of us prepare for those additional timeslots outside of broker-scheduled, as usual, anonymous poll time:

Compared to 2018, in 2019 I’ve received _____ instances of inbound direct outreach from the buy side (not using a broker):

A) Significantly less (6-20 fewer)
B) About the same (5 fewer to 5 more)
C) Somewhat more (6 more to 20 more)
S) A lot more (greater than 20 more)

Please choose one of the above; we'll get out our abacus and count up the results for publication in next Friday's Autocorrect. As usual, if there's anything you want to know about what your IR counterparts are up to, you're probably not the only one interested in the answer; send us a note (email 

IR Best Practices 

- It’s possible just about every week to find an example of “what not to do” in IR if you look hard enough. Hopefully, most of those messages aren’t worth reinforcing to those that have been in the industry long enough (the cadence of “don’t insider trade” messages is around 3x / week lately), but this week highlighted a story worth repeating. A Stinson Leonard Street memo gives the short wrap – essentially, a company announced in its last yearly 10-Q that it was facing “operating and reporting disruptions” sourced back to launching a new enterprise resource planning system.  These problems continued after the end of its year into annual earnings season, and as investors asked more questions about the problem, they pushed the company to file a fourth-quarter earnings release on a typical schedule, despite the ongoing accounting and audit issues.  The company filed its earnings release “on schedule,” but was then forced just 11 days later to restate the values from the first release (and, as you might guess, share prices fell sharply).  Simple lesson here for companies having any kind of issues – don’t rush your earnings release just to stay on timetable, get your numbers right first – there are consequences if you don’t

- What’s the right level of compensation for a CEO, and who gets to determine it?  Okay, that’s officially the job of a comp committee, but they have to operate within constraints – proxy advisor compensation methodology, investor stewardship teams that do their own math, and the pension fund clients that pay each of these two…but in reality, all of those are simply derivative of what the general public thinks about compensation.  This Stanford studyPaying a Pittance to the CEO: The American Public’s View of CEO Pay, is one of the first we’ve ever seen that thoughtfully return the topic to its first-order question, ”how much is too much?”, but also might give you a frame to view the risk of your company’s pay package winding up as front page headlines from a media seeking the eyeballs of the aforementioned public.

Done as a survey of the general public on questions such as “how much more should a large-company CEO make than a small-company CEO?”, we found a few questions jumped out. Yes, as you might expect, there’s some cognitive dissonance here: “If the CEO creates $100mm of new value through good management, how much more should that CEO be paid?” has a median answer of $10mm, but “[h]ypothetically, if a company is worth $100mm more than it was a the beginning of the year, how much of this value should be given to the CEO as compensation” has a median answer of $0.5mm. Read this one with the perspective of "if a journalist asked me these questions about our comp plan" and you'll get the right angle - it might help you bulletproof your compensation message for any audience, not just investors.


- The Edelman Trust Barometer is one of the most widely-read global surveys that touches on the success or failure of organizations in building trust with stakeholders.  For the last three years, Edelman’s produced a Special Report offshoot of the study focused on the institutional investor community, which has particular relevance to IR.  Sample size here is 600 participants with the investment community across six countries. The headline takeaways in the press release focus almost entirely on ESG’s contribution to trust with shareholders – for one, “virtually all investors surveyed expect the Board of Directors to oversee at least one ESG topic, and 52% say linking exec comp to ESG target performance would positively impact their trust in the company.” It’s entirely worth your time to look a bit deeper into the study results though; we liked seeing the most common topics investors intend to engage with boards on (data privacy / cybersecurity, employee health & safety, and eco-efficiency of the company’s operations were the top three), as well as the tactics investors cite as helping companies build trust (improving disclosure, shareholder engagement, and investor days).  Great background here as you plan out your goals for 2020. 

Questions? Comments? Interested in diversifying your company's real estate portfolio? Reach out to your IHS Markit team, or