The Dow Jones/Investor Relations Magazine US Index (the DJ/IR), which is made up of the companies doing the best overall IR as judged by the fund managers and analysts interviewed for the annual Investor Relations Magazine US Awards, gained nearly 140 percent from the beginning of 1996 through the end of April 1999. That’s against 118 percent for the S&P 500. In the first four months of 1999 the DJ/IR began slipping, rising only 7 percent compared to 9.2 percent for the S&P 500. This may be due to DJ/IR’s heavy energy sector weighting in 1999, with Anadarko Petroleum, Duke Energy and Enron in the index.
Clearly the DJ/IR demonstrates a connection between good IR and stock market performance – at least over the long term. But does good IR make a difference in the short term, especially when the market takes a nosedive? The charts zero in on two of the worst downturns in recent years – October/November 1997 and August/September 1998.
In 1997, when the S&P 500 ended Black Monday down 6.9 percent, the DJ/IR was similarly hit hard – knocked back 8 percent. On Tuesday both indexes bounced back by over 5 percent. In the end the 26 companies that made up the DJ/IR in 1997 just managed to hold their own against the overall market.
Last August, when world markets were shaken again, the S&P 500 closed another dark Monday down 6.8 percent. The DJ/IR, comprising 43 companies in 1998, was slightly insulated and fell 5.6 percent. Both indexes regained their early August levels by the end of October, within days of each other.
Looking at combined market performance, then, it appears that IR does not make a substantial difference in a downturn. What these charts don’t show, however, is trading volume, volatility and investor turnover in individual stocks, which may still be aided by good IR. Nor does it indicate whether those stocks enjoy a longer and more sustained recovery.
