4.1 Type and Investment Styles
Generally speaking, when we talk about Investor Relations, we mean communication with professional or institutional investors.
The most important institutional investors include equity funds, index funds, hedge funds, insurance companies and pension funds.
Although they are furnished with relatively few voting rights in comparison with institutional investors, private investors, also known as retail investors, are significant in terms of their numbers. An intermediate form consists of wealthy private individuals, also called high-net- worth individuals (HNWI).
Institutional investors generally pursue one of the following two investment processes:
- In the bottom-up procedure or stock picking, the focus is placed on the specific selection of the individual security. Sectoral or regional diversification is rarely practiced here or only as a long-term instrument for diversifying risk
- In the top-down procedure, investors evaluate markets and their prospects and subsequently look for individual securities in the favored industries or regions
There are also differences when it comes to investment style:
- In the growth approach, the focus is placed on the growth outlook of the company, meaning that sales, profit, or cash flow per share should be growing faster than in other companies in the industry
- In the value approach, a favorable valuation and the stability of the investment takes center stage. Value investors look for shares that they rate as undervalued by the market, generally in association with a higher dividend yield
- Both growth and consistency with previous definitions of value are taken into consideration in the blend or core approach
Investors in All SPI Companies by Investment Style
Investors in all SPI companies by investment style, Source: IHS Markit/IR club Schweiz, Swiss Ownership Trends Q4 2023 (rounded figures)
The above graphic shows the investors on the Swiss stock market based on their investment style. Accounting for 40 percent, value investors make up the most important group on the Swiss stock market in line with the «defensive» profile of the Swiss stock market. Index funds have grown strongly over the last few years and now account for over 20 percent of the SPI. They have become a factor that has to be taken seriously not only for large caps but also for small caps.