I thought this FT article on the role of tech in retail was really fascinating. Less about the impact that tech is obviously having on how consumers shop and the role of retail space, but more about the impact of 'dumb money' on shareholder structure and valuation.
Asos's recent vaulting of M&S in terms of market capitalisation illustrates the challenge that more traditional retailers have in transforming not just their business but the outlook of their shareholder base.
For traditional retailers finding a way to persuade the shareholders to go on a short-medium term earnings dilutive path to transformation is as difficult as navigating the path itself. Sadly this challenge often means that the leadership of these businesses shy away from the brave decisions that need to be made.
In a world where algorithms are increasingly determining the movement of share prices these transformation journeys are perhaps even harder!
There is also a growing question mark over how passive funds are impacting the efficient allocation of capital. Any investor will tell you that once a trend is in the headlines the smart money will have already moved on. But what happens when algorithms and rules-based vehicles are driving that consensus? Could the relentless march of passives be making the market less efficient? Fidelity’s chief investment officer for equities in Europe, puts it rather eloquently: “This is what happens when the wisdom of crowds is replaced by the oscillations of dumb money.” In all other aspects of modern life, technology is making life simpler, easier and cheaper. But if markets are becoming fundamentally less efficient, the path to value realisation will become steeper, meaning the investors of tomorrow will have to wait more patiently for returns.