Seeking index and ETF inclusion is impossible to ignore – but what can IR teams actually do?
When I started my journey in investor relations 15 years ago at a large-cap energy company, the focus was on the quality of materials, transparency and disclosure cadence. We wanted to report results ahead of peers, disclose all the metrics necessary to build high-quality financial models, maintain a regular cadence of disclosure – think monthly operating updates – and build presentations that clearly explained our investment story, our challenges and our strategy to overcome them. Slides had to tell a story and leave an impact.
There were a lot of investor conferences, roadshows and investor and analyst meetings but not a lot of targeting; the main focus was on collateral. Later came ESG, retail investors and a much greater emphasis on proactive investor targeting after MiFID II.
And yet this year, it seems we are getting back to fundamentals: collateral that speaks for itself when we cannot speak in person, build a relationship or win people over with a site visit.
That is in part due to the rise of passive investors.
Back in 2019, I remember hearing that we could not largely ignore passive investors anymore because their market share was already significant. Now, in 2026, passive ownership is impossible to ignore. In the US, index funds represent around 60 to 65 percent of domestic equity mutual fund and ETF assets, depending on the estimate. In the UK, the flow data is hard to ignore. According to LSEG Lipper, equities have seen a clear year-to-date rotation from active to passive: active funds shed £9.4bn, while passive funds attracted £5.0bn.
Investors appear to be allocating more heavily to index strategies during periods of uncertainty. Active managers face more scrutiny on fees when they struggle to outperform indices, while retail investors, often disenchanted with individual stock-picking, are choosing ETFs more often.
For large and mid-cap companies, ignoring passive investors is now an unaffordable luxury. But what can IROs actually do to communicate with them, and what are the trade-offs?
Starting simply
You can start by understanding which indices you are in, what the criteria are and who the other constituents are. Be aware of your index position and think about it when corporate developments are being discussed.
Remember that passive investors do vote. Where possible, reach out to stewardship teams ahead of AGMs to make sure they have all the necessary information and use this opportunity to create a touchpoint with a real person behind a significant investment.
Some companies run corporate governance roadshows, and I think this is a brilliant idea. It is a chance to be a little more proactive and make sure there is understanding both ways.
The tricky part is that proxy voting choice is becoming more common. BlackRock and Vanguard, for example, have introduced options that allow eligible clients or investors to choose how votes linked to their proportionate share of fund holdings are cast. Those investors should probably be thought of as somewhere between passive and retail, although that is a separate topic in itself.
Some companies run corporate governance roadshows, and I think this is a brilliant idea. It is a chance to be a little more proactive and make sure there is understanding both ways.
So far, there are no real trade-offs.
Increasing passive ownership
If you want to increase the share of passive investors in your shareholder register, you need a long-term strategy. Realistically, this is a three to five-year process and it needs senior sign-off: the C-suite, the board and, in some cases, strategic shareholders.
Start by making a list of all the indices you could potentially aim for and how many funds are linked to them. This is a very important parameter against which you should weigh the effort required to achieve inclusion.
Then list everything that currently prevents you from inclusion. This is where companies often encounter the first problem: not all index inclusion requirements are equally easy to interpret. FTSE is relatively transparent; S&P is also rules-based, although still not always simple in practice; and MSCI can drive you crazy.
Sometimes free-float thresholds, country classifications, liquidity rules or risk indicators are not as straightforward as they look from the outside. Your risk of labor strikes could be reported as very high based on an emerging versus developed market classification, even when strikes are illegal in your country.
Not all index inclusion requirements are equally easy to interpret. FTSE is relatively transparent; S&P is also rules-based, although still not always simple in practice; and MSCI can drive you crazy.
There can be many surprises. Some of them you can only understand properly by reaching a real person working for the index provider. It is not easy, but it is doable. In my experience, the best route is often through your network, whether that is a sell-side analyst, a friendly portfolio manager or an adviser who has dealt with the issue before.
Once you really understand the criteria, you can discuss the potential strategy with executives and the board.
For example:
- Should we do a secondary listing on another stock exchange? Should we consolidate existing listings?
- Should we consider re-domiciliation?
- Should a strategic shareholder sell part of its holding?
- Should we hire a market maker?
- Is our industry or region being classified correctly? Do we need a communications campaign to reposition the company?
- Should we work on the register to increase liquidity? If we have mainly targeted long-only institutions, do we need to engage more with retail investors now?
For every option, you need a risk and benefits analysis. Decision-makers need to understand the trade-offs.
Changing factors
A few things are worth considering when you have, or want to have, a significant share of passive investors.
First, all the constituents of the indices you are in become your peers to some degree. It is a good idea to keep an eye on them because their changes can be linked to your weight in the index. (Oh, where to find the time?)
Second, getting included in an index can support the share price but the reverse is also true. With passive investors, it can be a case of ‘up by the stairs, down by the elevator’: every time your weight is reduced, or if you are excluded, the impact can be painful.
Third, share price movements can start to seem random. You could have the best year, announce strong annual results and still see the share price fall because the index is down or because of mechanical flows. It is not only about your equity story anymore.
Whether you decide to manage existing passive investors more actively or build and execute a strategy to attract more passive ownership, one thing you absolutely cannot do any more is ignore them.
Fourth, passive investors vote. They may be passive in investment style, but they are not passive in stewardship. They can vote against management, including on themes like remuneration, governance or board-related matters. This is why engagement ahead of the AGM matters.
Finally, corporate actions need to be considered through an index lens. Buybacks, share consolidations, fundraising and employee option schemes can all affect your position in an index, your free float, your liquidity or your weighting.
Is it worth it?
Whether you decide to manage existing passive investors more actively or build and execute a strategy to attract more passive ownership, one thing you absolutely cannot do any more is ignore this dominant investor class.
This does not mean passive ownership should drive corporate strategy. But it does mean IROs need to understand the mechanics, the timelines, the criteria and the trade-offs, and make sure these are part of the conversation when major corporate decisions are being made.
Yet another evolution of investor relations has happened while we were busy debating and exploring AI. The IROs who understand it early will be better placed to advise their boards, protect their companies from avoidable surprises and make the most of a shareholder base that is becoming more passive in name than in consequence.
Irina Logutenkova is head of investor relations at AIM-listed IT company Getech
