What private investors should come armed with to their next AGM

interactive investor guides you through some of the questions.

With 2023’s annual general meeting (AGM) season in full swing, interactive investor, the UK’s second-largest investment platform for private investors, has created pointers that private investors can have handy for their next AGM, whether virtual or in person.

And there’s plenty of high-profile AGM’s yet to come, not least Scottish Mortgage (LSE:SMT) Investment Trust, Britain’s largest investment trust. On 27 June 2023, shareholders will get to grill the board, which has already been in the spotlight this year.

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Shareholders have a right to ask questions and get answers at AGMs, but – understandably – some investors may not know what types of questions to ask, or how to utilise their questions to make the most of these meetings.

ii regularly publishes guidance for private investors on AGMs in the near term, and how private investors can use their voice to drive change. Today, it delves into the types of questions investors can ask directors to get a better understanding of that company or investment trust.

• Your AGM guide: what you can do and how to do it
• Shareholder voting & information. Have your say on the companies you invest in

Questions to have ready for your next AGM

Lee Wild, head of equity strategy, interactive investor, encourages private investors to get specific with their questioning. He explains:“Attending an AGM is a win-win for you as a shareholder. You can grill directors, and you also leave with a deeper understanding of the company you are invested in. The overall objective should be to use your questioning wisely - try to ask specific questions, so lookout for anything that was either not answered by the annual report or was not made clear.

“Unfortunately, annual reports and investor communications are not always easy to navigate. Unlike in the US, UK plc does not have ‘Plain English’ enshrined into investor communications, though this is something ii campaigns heavily for. After all, legalese and jargon disenfranchises private investors. Many annual reports may assume industry knowledge that some private investors may not have, and this is where you should ask for explanations at the meeting itself.”

Direct equities 

• AGMs provide a fantastic opportunity to fill in any gaps in your knowledge on that company – for example, the company's risks and strategy. You can use AGMs to ask in more depth about competitors, for example, which you’d otherwise only see in general terms in the annual report.
• Don’t forget to listen out for other questions from individual investors; often it’s the questions other investors ask that reveal the most.
• One thing that comes up a lot is remuneration. This is something that investors have the opportunity to vote on, so it is particularly relevant. Smaller companies do not have to quote the ratio of chief executive pay to median pay for example. ii once saw a shareholder ask a board if they would consider publishing the figure anyway - and it was, the following year, illustrating the impact private investors can have on boards.  
• In person AGMs: If you want to fill in gaps in your knowledge of the company's risks and strategy and the presentation they often give, is can be a good time to tackle directors about that in the informal time after.
• The overall objective should be to use your questioning wisely - try to ask specific questions, so lookout for anything that was not answered by the annual report or was not made clear in the report.    
• We have heard anecdotal feedback that since the pandemic, some companies, particularly smaller ones, have become more open to exchanging emails with private investors and staging online presentations. So don’t be shy about asking questions throughout the year.
• interactive investor allows customers to vote remotely, a service increasing numbers of customers are making use of since ii opted customers into its voting and information service.

What to ask at your next investment trust AGM

Kyle Caldwell, collectives editor, interactive investor, explains: “Even if the resolutions on the table are, more often than not, ‘business as usual,’ investment trust AGMs are a fantastic opportunity to hear from managers and boards, and – if necessary, hold them to account.

“A key structural advantage of investment trusts versus funds is their independent board of directors, giving independent oversight. This includes oversight of managers themselves, and ultimately helping to look after the interests of shareholders (such as by driving down costs).”

Some of the areas private investors can ask about at an investment trust AGM include:

• Performance-related questions: particularly if the investment trust has over the short or long term underperformed its benchmark and/or the sector it sits in.
• Portfolio-related questions: for example, you could ask - what have been the latest changes to the portfolio, have you introduced new themes over the past year, how have the sector weightings changed over the past year?
• An outlook for the region or asset class the investment trust operates in against the wider macroeconomic backdrop: You could ask questions such as: how will your investment approach fare if interest rates remain high? Will you need to make changes to the portfolio?
• The discount: (That is, if the investment trust is trading on one) you could ask: why is the investment trust trading on a discount, and what is being done to try and reduce the discount – are the board proactively buying back its own shares?
• Succession planning: (if the fund manager is in latter stages of his or her career) What steps are being taken to ensure a smooth transition if and when the fund manager retires in the coming years?
• Sustainable investing: For example, you could ask - how does the investment trust implement sustainable investing as part of the investment process? Could you name examples of how you have successfully engaged with companies that has led to a positive sustainability outcome?
• Skin in the game: You may want to ask whether the manager personally invests in the investment trust they manage, and, if they do – whether they have increased their personal stake over the past year.
• Diversity – boards are becoming less male and stale, but it’s still an important question, and not just from a gender perspective. 
• Do the board believe they have the right blend of experience? This can be topical, for example, where a trust has exposure to unlisted assets, which can require specialist knowledge. 
• Performance fee arrangements: If a performance fee is in place, are the board confident that it is sensibly set?
• For very small investment trusts: Has the board considered merging to create a larger, more liquid investment trust?

Shareholder engagement gaining momentum

Earlier this year, interactive investor reported it saw a 30% increase in the number of votes processed, from 162,673 in 2021 to 210,801 in 2022.

AGM attendance, as measured by the number of unique accounts requesting letters of representation, doubled. This was from a very low base – 720 letters were sent in 2022, up from 359 in 2021, 263 in 2020, and beating pre-pandemic levels (651 in 2019). This emphasises the challenge UK PLC and the wider platform industry face if AGMs are to gain broader engagement.

This significant progress comes after interactive investor made customer shareholder notifications for UK listed securities opt out, rather than opt in. This change, in November 2021, immediately removed a major barrier to retail investor participation.