Through the first quarter of 2025, investors were coming to grips with the adverse consequences of rising tariffs. The S&P 500 Index fell 4.3% during the first quarter and the S&P 500 Equal Weighted index fell just 1.1%, reflecting broader participation in the market this quarter. Investors and the general public alike found themselves wrestling with the uncertainty that arose from the current administration’s intent on implementing higher tariffs on imported goods from most trading partners, which weighed heavily upon investors. To that end, we at ³ÉÈËÊÓƵ decided to research one particular segment of the investment community, deep value investors, to see where they were looking for best opportunities. In combing through the portfolios of close to 95 investors who classify their investment strategy as Deep Value, we searched for sectors that had the greatest difference between the number of firms that bought than sold. This analysis found these investors were net most bullish on Health Services and Communications sector stocks, while the largest net number of investors were most aggressively reducing exposure to Producer Manufacturing and Technology Services.

Health Services

To understand what drove the attraction to the Health Services sector, we analyzed the largest buyers of this sector, which proved to be Dodge & Cox, Davis Selected Advisers LP and Barrow, Hanley, Mewhinney & Strauss LLC. Across all three investors was one common stock purchase – CVS. The fund having the greatest impact on Dodge & Cox’s Health Service investment trend was the Dodge & Cox Stock Fund, led by David Hoeft. In the fund’s first quarter investment commentary, the investment team commented, “In 2024, the Health Care sector faced significant challenges due to margin pressures and concerns about the potential for adverse regulatory changes. After being 2024’s largest detractor, Health Care was the top-contributing sector to the Fund’s relative performance during the first quarter of 2025. Our activity in the shares of CVS Health is an example of our contrarian, long-term approach. CVS has rebounded strongly after weak 2024 performance, up over 50% in the first quarter. 2024 was a difficult year for CVS due to weaker sales at its pharmacies and higher medical costs in its Medicare Advantage health insurance segment. The company’s results rebounded in the fourth quarter under new CEO David Joyner, who joined in October. The strong results fueled investor hopes for a turnaround. Consistent with our contrarian approach, we added to CVS during 2024 and early 2025 to take advantage of the company’s depressed valuation and our positive long-term outlook for the company.”

Another stock that was fancied by these same investors was Cigna. Davis Selected Advisers’ Davis NY Venture Fund managers Chris Davis and Danton Goei recently commented, “…our investments in this important sector [healthcare] have focused on those companies that play a part in moderating or reducing the natural rate of increase in healthcare spending. Companies such as Cigna and Humana, for example, offer programs like Medicare Advantage which deliver patients a higher quality of care at a lower cost.”

Communications Sector

The Communications sector saw the second largest net number of buyers over sellers but recorded the smallest capital inflows of all the sectors with positive net inflows. Unlike with the Heath Services sector, there were no commonalities with particular stocks that were driving the trend. Interestingly though, much of the funds driving the buying trends within this sector were non-US focused (i.e. Emerging Market, Global, International, etc.). This non-US focus directly ties back to the theme at the beginning of this paper – tariffs. The fund management team of the Brandes Emerging Markets Value Fund commented in their 1Q quarterly commentary, “We have also observed substantial value potential in select businesses in Mexico as the market remains concerned about tariffs… The Fund’s other Mexican holdings, such as telecom services provider America Movil, have significant exposure to non-Mexican peso currencies.”

Sources of Capital

“Our examination of what sectors were used as sources of capital for aforementioned purchases, we note:

• Deep Value investors rotated away notably from Technology Services and Producer Manufacturing sectors.
• Technology Services saw the largest outflows, totaling $6.2 billion in Q1 2025.
• Major driver was selling of Alphabet stock.
• Alphabet was the top performance detractor for Harris Associates’ Oakmark Global Fund.
• Fund manager David Herro noted Q4 2024 earnings met consensus, except for a slight miss in Google Cloud revenue growth due to short-term capacity issues.
• Long-term growth outlook for Google Cloud is viewed as strong.
• Alphabet seen as a collection of strong businesses benefiting from AI capabilities.
• Shares trading at ~15x next year’s estimated earnings, considered significantly undervalued.
• Despite this, the fund reduced its Alphabet exposure by approximately 13%.”

Trading Activity

High activity (>75%) occurred in 10 sectors, such as Producer Manufacturing (97.8%), Finance (94.6%), and Technology Services (92.5%). Lower activity in winners like Communications (51.6%) implies steadier, conviction-driven buying. High-volatility sectors like Retail Trade (88.2%), where elevated trading is already jumpy amongst deep value investors, tariffs hitting consumer goods could trigger even more instability within the sector.

Sector Diversification & Implied Value

Most sectors showed a negative diversification with deep value investors (indicating a higher concentration among a few holders, and investors maintaining more liquidity). With only three positives: Finance (5.6%), Technology Services (1.7%), and Process Industries (0.4%). Lowest were Consumer Non-Durables (-8.7%), Consumer Durables (-7.6%), and Retail Trade (-4.5%). Lower diversification in outflow-heavy sectors like Technology Services could amplify deep value investors sentiment to the downside, while Finance’s high diversification offers a buffer during high levels of volatility and uncertainty.

Conclusion

With political uncertainty weighing heavily on investors’ minds, institutional capital clearly leaned into sectors offering defensive growth and contrarian opportunity. Health Services emerged as a standout beneficiary, not merely due to favorable stock selection but because it aligned with deep value investors’ broader goal: to uncover temporarily depressed, misunderstood, or structurally undervalued assets that offer return potential.

The strategic overweight in health services stocks, specifically in companies like CVS and Cigna, underscores this conviction. Investors collective interest in CVS encapsulates deep value behavior: buying into fear, anticipating recovery. Cigna, too, illustrates a value-aligned thesis centered not just on recovery, but operational relevance. These stocks weren’t merely ‘cheap’; they were strategically resilient, less sensitive to geopolitical shocks like tariffs, and positioned for normalized earnings rebounds in 2025.

In contrast, sector outflows in Technology Services and Producer Manufacturing reveal the flip side of this rotation. Technology, once favored for growth, faced valuation compression and earnings-related disappointment (e.g., Alphabet), making it less attractive to value-driven allocators. Despite consensus expectations being met, underperformance in key segments like Google Cloud triggered reassessments and partial exits. This suggests that for deep value investors, valuation alone is not sufficient, companies must also exhibit short- to mid-term operational catalysts or margin of safety in times of volatility.

The larger takeaway: deep value investors in Q1 2025 demonstrated an active rotation strategy, exiting richly valued or high-volatile sectors like Technology and Manufacturing, while embracing sectors perceived as both oversold and politically insulated. High activity in Finance and Retail suggests anticipation of volatility, but the conviction buying in Health Services, along with low diversification plays, marks a targeted move toward sectors with tangible recovery paths.

This behavior affirms that deep value is not passive or reactive, it is forward-looking and willing to withstand short-term volatility in pursuit of long-term gains. As regulatory visibility improves and regulatory uncertainty stabilizes, many of these 2024-depressed health stocks may continue to serve as core holdings, reflecting the discipline and patience that define deep value capital allocation.

With investors turning to unique ways to uncover stocks that will flourish in these uncertain times, Alliance can assist Investor Relations professional in crafting the proper message while also identifying which investor portfolios your stock is best aligned. Alliance offers dedicated institutional targeting specialists with proprietary algorithms that can maximize engagement efforts and reduce the ‘courtship’ period of cultivating new shareholders.

Every corporation at some point in its corporate history will have to deal with disseminating unfavorable news.  Whether it takes the form of an earnings miss, corporate restructuring, key executive departure, product recall, natural disaster, macro-economic or political event, companies need to be prepared to handle corporate crises effectively.

Bad new handled improperly is akin to throwing gasoline on a fire which can allow bad news to pile on top of bad news and the crisis never ends. Conversely a strategy that revolves around accountability and transparency can build trust in the executive team during challenging times.  How a company responds is directly corelated to how quickly a company recovers from adverse news.

The following is a check list of time-tested guidelines that every company should follow:

• Take Responsibility and Be Accountable: Companies must address the issues head on, immediately. Long gone are the days of releasing bad news on a Friday afternoon after the market has closed. Unfavorable news travels instantly through hundreds of distribution points and in some cases the “Street” may have the news before the company does. Companies need to own the mistake or problem before it spirals out of control.
• Be Upfront and Honest: Correct false information right away don’t let short sellers or uninformed press circulate false information. Being transparent helps prevent or rein in speculation and serves to control the narrative. Communicating the timeline for corrective actions and providing a clear plan for rectification does not allow for bad news hang around.
• State Facts to Increase Credibility: Focusing on factual information to enhance trustworthiness don’t veer off script. Executives must avoid being emotional and stay away from defensive language. Saying you are going to sue a short seller in a fit of anger get you nowhere.
• Provide Actionable Steps: Every response in a crisis must be accompanied with a plan of action or solution otherwise you are just stating the obvious that there is a problem. Outline the steps the company is taking to rectify the situation. Explain preventive measures to avoid recurrence. Being solution-oriented in a crisis is a powerful response from management that they are on top of the problem. Actional steps will help a battered stock recover faster as savvy investors will look at it as an entry point in the stock.
• Don’t Over-Communicate or Make Excuses Be Clear and Concise: Stay on topic and don’t elaborate. It is dangerous to overshare information or provide justifications.  Bad news can exist without a “spin” especially if it’s the type of problem that was created by external forces such as a strike, natural disaster or similar.
• Coordinate Internal and External Communication: Consistency across all communications is key.Aligning the company’s message internally and externally to avoid mixed signals.
• Throw in the Kitchen Sink: If you have bad news get it all out of the way in one shot. This would be especially true in restructurings or write downs if you are going to write down thrown in everything including the kitchen sink, as the saying goes on Wall Street. At all costs companies must avoid multiple bad news events, one after the other.
• Turn Negative PR Into a Marketing Opportunity: Providing solutions and action items on the issue can be a positive marketing message. In many cases companies have turned negative events into a win.
• Monitor Social Media and Clarify Misleading Statements: Stay on top of social media conversations. Companies must address and correct misleading or harmful statements quickly.
• Be Mindful of Regulatory Compliance (Reg FD): Avoid side conversations that could violate regulations. Ensuring consistent messaging by preparing talking points for the team. Designate a single spokesperson for clear communication.
• Crisis Preparedness: Every company should have a realistic crisis plan in place with the role of a call tree and designated response protocols. Crisis teams, specifically the IR, Shareholder Engagement, law firm and PR teams should be set out in advance.

By following these best practices, a company has a much better chance of recovering from a crisis with its reputation intact. Showing accountability and transparency during crises builds long term value in the company and its management.

Will ISS or institutional shareholders hold it against my company if we add shares to our equity plan two years in a row?

³ÉÈËÊÓƵ receives this question often, and it was worth a deeper look.

If going back for shares two years in a row caused companies to lose support on their equity plan proposals, then surely a company that asked shareholders to approve a new share increase six consecutive years would face a significant increase in ‘against’ votes over time.

³ÉÈËÊÓƵ found twelve members of the Russell 3000 had proposed new or amended equity incentive plans each year from 2018 to 2023.

³ÉÈËÊÓƵ analyzed each of those proposals and determined there is no evidence of a change in shareholder support as a result of repeated equity plan replenishments.

Furthermore, there is no clear pattern as to the type of company that replenishes the share pool six years straight. Five of the twelve companies are pharmaceuticals/biotechs, but the remainder includes Google, Salesforce, Citigroup, and multiple electronics manufacturers.

If your company is planning to ask for an Annual Equity Plan Replenishments multiple years in a row, or for the first time in many years, the factors below are worth considering:

1. Receiving proxy advisor support on an equity plan proposal doesn’t necessarily seal the deal, nor is proxy advisor support often necessary for passage. While investors often use proxy advisors ISS and Glass Lewis recommendations as inputs for their evaluations of equity plan proposals, many ultimately determine whether an equity plan proposal merits support based on dilution, burn rate, and the company’s business rationale. Several large institutional investors have thresholds for these factors that are more stringent than those in ISS or Glass Lewis policies, lower dilution limits for example. As such, knowing your company’s shareholders and their specific policies before your plan goes to vote is critical to determine if approval of your proposal faces an uphill battle. ³ÉÈËÊÓƵ can provide you with an equity plan projection to determine the likely vote outcome based on your shareholder base.
2. Commitments needed to secure ISS support when replacing an existing equity plan. When companies seek approval of a new equity plan and intend to terminate and cancel the remaining shares available in an existing equity plan, proxy disclosures need to be clear on this intention. Otherwise, ISS may include the remaining shares available under the old plan in its calculation of plan costs (termed shareholder value transfer, or SVT, by ISS). This would render the plan more costly and negatively impact scoring under the Equity Plan Scorecard (EPSC) – ISS’ tool for analyzing employee stock incentive programs. A few years ago ISS revised its policy to require an explicit commitment that: (a) no further shares will be granted under the existing plan unless the successor plan is not approved, or (b) the number of shares available under the successor plan will be reduced by shares granted under the existing plan prior to the successor plan’s approval.
3. If your company’s equity awards are heavily concentrated at the NEO level, check your pay-for-performance alignment¹
   . Some issuers are surprised to learn that having a pay-for-performance (PFP) misalignment could negatively impact ISS’ recommendations on equity plans in situations where the majority of equity awards are concentrated in the C-Suite. This is in fact possible even when the equity plan scores favorably under ISS’ EPSC evaluation if ISS considers that the equity grant practices are driving the misalignment. To avoid any surprises, it is advisable to calculate equity concentration ratios for your CEO and NEOs and run a pay-for-performance simulation to see if there will likely be an elevated PFP concern. Having a broad-based plan is also a positive feature for most investors.
4. While there are numerous factors that feed into the evaluations that proxy advisors and institutional investors use to determine voting on equity plan proposals, the aforementioned are considerations that are sometimes overlooked, and can lead to surprise outcomes. Awareness and preparation for these can go a long way in seeing an equity plan proposal over the finish line.

¹ While ISS and Glass Lewis methodologies for determining whether executive pay and company performance are aligned vary, these quantitative tests is are an important component of both proxy firms’ evaluations of Say-on-Pay proposals. Essentially, they look at the relationship between executive pay and company performance, as measured by total shareholder return (TSR), over multiple periods on both an absolute and relative basis.

In the second half of 2024, there was a pronounced spike in the number of activist investing campaigns which took place in the UK with over 50 companies publicly targeted across the year, a rise of 30% vs the previous year as activist activity reached its highest levels since 2019. This continued into 2025 with some of the largest FTSE companies facing activists demands and despite tariffs provoking market volatility, the UK remains ripe for opportunity with activist activity expected to remain elevated for the foreseeable future as it experiences a new wave of shareholder activism.

For the best part of a decade prior to the pandemic, there was a gradual crescendo in UK activism with over 130 companies facing public demands from activist investors in a two-year period between 2018 and 2019. The UK was consistently the second busiest market (behind the US) for activism and frequently accounted for more than 50% of the campaigns across the whole of Europe.

However, while activism has quickly bounced back in North America over the past couple of years with activity recovering to pre-pandemic levels, activism campaigns in Europe have remained depressed with UK activity remaining especially low post Brexit. Activism activity in Asia has now surpassed European levels with Japan replacing the UK as the ‘hot’ market for activist investors outside of the US.

Macroeconomic factors have largely been responsible for this with geopolitical uncertainty, the global energy crisis, high interest rates and inflation being felt more keenly in Europe than on other continents. US investors, who had been driving the majority of activism in the UK previously, turned their attention back home to focus on unlocking value within the newly shaped US corporate landscape which the pandemic had created. Additionally, governance reforms in Japan and Korea alongside attractive balance sheets with value waiting to be unlocked also saw US investors turn their attentions further east.

However, with a price to earnings ratio averaging 50% lower than their US counterparts, UK stocks remain cheap which is attracting US investors back to the UK. Prominent US activists, Elliott Management (BP), Trian Partners (Rentokil), Third Point (Soho House) and Engine Capital (Smiths Group) all ran public campaigns in the past 9 months. The common theme has been to push UK companies to look at divestitures and/or sales given the favorable conditions for take private deals and the desire for activists to streamline businesses so that they can become more efficient and profitable as they focus on long-term growth. Similarly, asking companies to move their listings to the US or another jurisdiction is an increasingly popular demand with Third Point allegedly having engaged with a number of large FTSE companies encouraging them to relocate from London to New York in order to bring valuation multiples in line with industry peers. In the case of Rio Tinto, Palliser Capital argued that unifying the company’s DLC structure would unlock significant shareholder value and ensure better alignment between the global mining giant’s workforce and operational focus should it move its primary listing to Australia.

In addition to Palliser, other ‘homegrown’ activists have also returned to the fore with Harwood Capital, Gresham House, Gatemore, Metage and Sparta Capital all particularly active in 2024. Furthermore, several new activist hedge funds have been established in London, notably Finch Bay Capital which was founded by Elliott and ValueAct alumni Leo Markel and Daniel Urdaneta, alongside Spur Value Partners whose principal, Til Hufnagel, recently left Petrus Advisers to start his own fund.

In the UK investment trust sector, Saba Capital took the unprecedented step of requisitioning EGMs at seven different companies at once in order to put pressure on funds to narrow their NAV discounts and achieve higher returns. While this approach was notable for its aggression, there has been a broader trend of activists conducting more of their engagement in the public arena as they look to amplify their concerns to boards. There appears to be a collective frustration across not just shareholder bases but other key stakeholder groups when it comes to the performance of not just individual companies but the UK capital market as a whole, with a strong desire to see changes made in order to reverse the post-Brexit decline. Activists appear to be tapping into this feeling by using stronger rhetoric as a way of putting companies under pressure, knowing that this is more likely to resonate with investors and other stakeholders, helping them win support given the appetite for change.

Several investors have mentioned that as the gap between the US and UK markets has widened over the past decade or so, there is currently a huge amount of unrealized value at UK companies, with ample opportunity to enact M&A or operation changes in order to boost shareholder returns. Prior to the pandemic, M&A demands frequently accounted for more than half of the activism campaigns in the UK and so if M&A picks up in the second half of 2025 as anticipated, there will be more opportunities for activists to both make and disrupt deals ensuring that activity levels remain high and maybe even surpass the previous highs we saw at the end of the last decade. ³ÉÈËÊÓƵ ranked in the top five global activism practices in 2024 and remains well placed to help companies and investors both prepare for campaigns ahead of time and achieve success when the stakes are at their highest.

Introduction

Executive remuneration remains one of the most debated aspects of corporate governance globally. While the United States and the United Kingdom are developed, market-oriented economies with well-established corporate sectors, they differ significantly in how they approach executive pay. These differences are rooted in regulatory frameworks, governance philosophies, cultural expectations, and the broader socioeconomic landscape. We have written this paper based on ongoing discussions and debates with our Clients, colleagues and peers, trying to outline how our ecosystem handles executive remuneration practices, highlighting the implications on the US/UK divide when it comes to corporate strategy, investor relations, shareholder activism and long-term value creation.

Regulatory Frameworks

One of the most noticeable differences between the two countries lies in the regulatory oversight of executive remuneration.

In the United Kingdom, executive pay is governed by a combination of the UK Corporate Governance Code, the Companies Act 2006, and shareholder engagement standards set by entities such as the Investment Association. UK-listed companies must submit a binding vote on their remuneration policy every three years and an annual advisory vote on the implementation of the policy (the remuneration report). This structure ensures that shareholders have both strategic influence (on policy design) and operational oversight (on how pay was awarded).

By contrast, the United States follows a more flexible regulatory framework, primarily shaped by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Public companies must conduct an annual “Say on Pay” vote, but it is advisory only. Boards are not legally bound to change pay practices even if a majority of shareholders vote against the proposal. Furthermore, there is no mandatory requirement to submit the entire remuneration policy for shareholder approval. Regulatory oversight is primarily enforced by the Securities and Exchange Commission (SEC), which focuses on disclosure and transparency rather than prescription.

Governance and Committee Structures

In both jurisdictions, remuneration committees—typically made up of independent non-executive directors—play a critical role in determining executive pay. However, the governance culture differs considerably.

The UK Corporate Governance Code places strong emphasis on board independence, transparency, and fairness. It mandates that remuneration committees consider workforce remuneration and conditions when setting executive pay. It also expects companies to disclose pay ratios (CEO-to-median employee) and justify remuneration decisions based on long-term company performance.

In contrast, US governance standards—guided by NYSE or Nasdaq listing requirements—also require board independence but place a heavier focus on performance incentives and shareholder returns. Although CEO pay ratio disclosures are now required under the SEC’s rules, there is less emphasis on internal equity or fairness relative to the broader workforce.

Structure of Executive Pay Packages

While both countries use a combination of base salary, annual bonus, and long-term incentives, the structure and scale of these packages differ markedly.

In the United States, executive compensation is generally higher in absolute terms, particularly among S&P 500 companies. A large portion of total pay often comes from stock options and performance shares, designed to align management interests with shareholder value. US CEOs may also receive retention bonuses, signing bonuses, and perks (e.g., personal use of corporate jets, security expenses) that are far less common in the UK.

The United Kingdom, especially among FTSE 100 firms, tends to emphasize long-term incentive plans (LTIPs) that vest over three to five years. There is also a growing trend toward simplification of pay structures, moving away from complex, multi-scheme plans toward more transparent arrangements. Moreover, UK companies often have shareholding requirements for executives, requiring them to hold a multiple of their salary in shares for a certain period even after leaving the company.

Shareholder Activism and Say-on-Pay Votes

Another significant governance trend is the rise of shareholder activism in the US and UK. Institutional investors, particularly those under stewardship codes, whether they be regionally or global, have become more vocal about executive pay.

The binding nature of UK votes on remuneration policy gives shareholders significant power over how executives are paid. Shareholder revolts are not uncommon, especially when pay increases are awarded despite weak financial performance or when bonus criteria are considered too lenient. Public backlash and media scrutiny often lead to remuneration policy revisions or leadership changes.

In contrast, US shareholders have less formal power despite active engagement. Even when say-on-pay votes receive majority opposition, boards are under no obligation to amend pay packages. However, investor pressure from large institutional shareholders such as BlackRock, Vanguard, and ISS has led to some voluntary reforms, particularly around clawback provisions and performance metric disclosure.

Cultural Attitudes Toward Pay and Inequality

Cultural and societal attitudes toward pay differ significantly between the two nations.

In the UK, there is a stronger emphasis on moderation, fairness, and social responsibility. Excessive CEO pay is often seen as a reputational risk and a sign of poor governance. The UK’s approach reflects broader European values around equity and stakeholder capitalism.

Conversely, in the US, high executive compensation is more widely accepted, often viewed as a reward for success and innovation. The broader American business culture is more individualistic and tolerant of income disparity, particularly when tied to corporate performance. This cultural difference is reflected in the much higher CEO-to-median employee pay ratios in the US, often exceeding 300:1 in large firms, compared to roughly 100:1 in the UK.

Inclusion of ESG and Non-Financial Metrics

A recent area of divergence is the integration of Environmental, Social, and Governance (ESG) metrics into executive remuneration.

The UK has taken a proactive approach, with over half of FTSE 100 companies incorporating ESG factors into their incentive schemes. These include targets related to carbon reduction, diversity, and employee engagement. Regulators and investors in the UK increasingly expect ESG to be material, measurable, and linked to long-term business strategy.

In the US, ESG-linked compensation is growing but remains more controversial and politically polarised. Some investors support its inclusion, while others—especially in certain states—oppose it on the grounds of overreach or ideological bias. As a result, uptake is slower and varies significantly by sector and region.

Clawback and Risk Management

The UK has established malus and clawback provisions as standard in executive contracts, particularly in financial services. These provisions allow companies to reduce or reclaim bonuses and LTIP awards in cases of misconduct, restatements, or risk failure. Companies are also expected to disclose how and when such provisions are applied.

In the US, clawback policies have historically been weaker but are now strengthening. The SEC’s 2023 Clawback Rule mandates that companies recover incentive-based compensation if it was awarded based on financial statements that are later restated. However, practical enforcement remains inconsistent.

Conclusion

While both the UK and the US share a commitment to aligning executive pay with performance, their approaches differ fundamentally. The UK adopts a more structured, stakeholder-oriented model, with binding shareholder votes and broader social accountability. The US, by contrast, emphasises flexibility, high-powered incentives, and shareholder returns within a more market-driven framework.

These differences are not merely technical—they reflect divergent cultural, legal, and governance traditions. As global investors and regulators push for greater alignment between pay, performance, and purpose, understanding these contrasts becomes essential for boards, investors, and executives navigating international business.

Through the first quarter of 2025, the S&P Composite 1500 / Energy Index has reached heights only achieved twice (in 2008 and 2014), leading investors to believe that valuations of the Energy sector have pushed into over-valued territory. The S&P Energy Select Sector Index has similarly reached heights only broached twice before and so far this year, energy stocks lead all S&P 500 sectors. Understanding what has underpinned this performance helps explain the drivers of smart-money sentiment. While prices were relatively flat for all but one of the key energy products in 2025’s first quarter, only natural gas prices that have risen, rallying nearly 25%.¹ Since hitting $80 a barrel on January 15, West Texas Intermediate crude oil has fallen by nearly 30%, hitting sub $57 just recently. This scenario played nicely into the broader market sentiment that saw many factors create a “risk-off” environment, prompting a rotation out of growth-oriented sectors into more defensive and/or value-focused areas.

With this backdrop in mind, ³ÉÈËÊÓƵ conducted shareholder analysis to see which investors were buttressing the sector’s performance. We reviewed mutual fund holdings within our innovative investor intelligence platform, Invictus®, to understand which mutual funds were the most bullish supporters of the Energy Minerals sector, and the results proved interesting. Our initial screen was for actively managed mutual funds based in the United States that have been increasing their exposure to Energy Minerals sector stocks by more than $5 million. We then filtered out any funds that did not hold at least five (5) Energy Minerals sector stocks so as to remove any anomalous outliers. When sorting this list by the percentage of purchased to owned investments, a clear trend emerged. The most bullish funds in the Energy Minerals sector were not industry funds (Oil, Gas, Commodities, etc), but rather Value focused funds followed by Global funds. Leading the list was the Allspring Large Company Value Fund managed by Ryan Brown and Harin de Silva. Underpinning the fund’s sector investment theme was a rotation into mega cap names (ConocoPhillips, EOG Resources, and Exxon Mobil) at the expense of mid- and large-cap names (Ovintiv, National Fuel Gas, and Diamondback Energy).

Similarly, the Avantis US Large Cap Value Fund managed by Eli Salzmann and David Levine, the second largest percentage increase in the sector, was also seen rotating into meg cap sector names (Chevron, Exxon Mobil, ConocoPhillips and EOG Resources) at the expense of smaller capitalization companies (HF Sinclair, PBF Energy, Civitas Resources, SM Energy, and APA Corporation). Helping Chevron during this period was the US President weighing a plan to extend Chevron’s license to pump oil in Venezuela, as per Reuters.

The Neuberger Berman Large Cap Value Fund, the third largest increase with a dedicated value focus, seemed to apply a comparable approach by heavily increasing exposure to EOG Resources and Chevron, though instead of sourcing capital from smaller market capitalization companies chose to rotate within the mega cap space by reducing exposure to Exxon Mobil and Phillips 66. In the fund’s April commentary, fund manager David Levine wrote, “From a sector allocation standpoint, the Fund benefited from an overweight positioning in energy and an underweight positioning in information technology».

In shifting to the Global funds, the most bullish fund was the BlackRock Advantage International Fund managed by Raffaele Savi, Kevin Franklin and Richard Mathieson. This fund mirrored the earlier trends of increasing exposure to mega cap names, though those outside of the United States (Shell PLC, Equinor ASA, and TotalEnergies SE), each within the Integrated Oil industry. When highlighting the contributing factors to performance, the fund’s most recently commentary stated,

Fundamental quality measures focused on sustainability of earnings and penalizing companies with high wage pressures were the top contributors… Collectively, stock selection was strong across Europe through a preference for domestic financials and defense stocks over those reliant on global trade.

Another globally-focused fund exhibiting bullish sentiment in the Energy Minerals sector was the Kopernik Global All Cap Fund managed by Alissa Corcoran and Dave Iben. This fund made a rotation into North America with its three largest purchases in Canada’s MEG Energy, US-based Expand Energy and Range Resources. This trend follows in line with the fund’s driving principle that being an opportunistic portfolio will have a low correlation to other managers. The fund’s primary philosophy and process is designed to capitalize on market dislocations based on fear and greed.

The period for which these holdings analysis encompassed was historically unique, as the overarching influence on investor sentiment was the US President’s ever-changing tariff strategy. Crude benchmarks suffered from demand concerns related to these tariff concerns. After providing initial headwinds, a decision to pause tariffs on non-retaliatory nations for 90 days and lowered reciprocal tariffs to 10% provided some tailwinds. Also, tanker data had Russian, Iranian and Venezuelan crude exports all rebounding in March, despite US sanction threats.

For corporates looking to influence their shareholder constituents, Alliance’s team of market experts can help you understand shifting market dynamics to ensure your time is spent with the “right” shareholders instead of the traditional peer-focused investors.

¹ Energy Information Administration

As issuers prepare for a new proxy season, establishing a robust investor engagement strategy can help pave the way to success, writes Michael Vogele, managing director, global advisory group, ³ÉÈËÊÓƵ.

While bringing about change may take months or even years, the communication of this strategy must be sound.

Now that the dust has settled on the 2023 proxy season, companies are asking themselves what the 2024 season may hold in store for them. Some companies look at N-PX filing data, a Securities and
Exchange Commission (SEC) form that details the proxy voting records of registered funds, to give them insights into investor voting decisions, while investor voting policies are another avenue to aid issuer understanding of voting decisions. While investor policies are publicly available and updated on an annual/bi-annual basis, understanding voting triggers requires a nuanced review.

Starting in September, companies also begin the practice of proactively engaging with their largest shareholders, rather than waiting for investors to contact them with concerns or disclosure requests. The companies taking this initiative are hoping to understand what compensation, governance, environmental and social (E&S) or sustainability risks an investor may perceive and ways to avoid a non-supportive voting decision. Regrettably, not all companies effectively engage with their shareholders. They believe that having calls with the investor portfolio managers is sufficient. Yet, by doing this, they are excluding the ESG, stewardship or responsible investor teams, as they are known in different jurisdictions. It is these entities that end up making the proxy voting decisions and they are the ones that need to be engaged with. Depending on the level of vote support at the annual shareholder meeting, investors and proxy advisors may be expecting a company to make appropriate structural changes. Specifically, any resolution receiving below 80% support from shareholders, be that elections or discharge of the boards, “say on pay” resolutions, auditor ratification, all require a robust corporate response, including clear disclosure on engagement efforts. In addition, should a shareholder resolution receive upwards of 20% support, it would also behoove a company to determine why shareholders supported this resolution by such a wide margin. That being said, many companies unfortunately do not understand what responsiveness looks like for an investor.

As a pertinent example, let us discuss board elections where typical objections are based on shareholder unfriendly governance practices, lack of diversity on the board, or compensation concerns, to name a few reasons. What are companies expected to do with this initial insight? What we would recommend initially is to speak to as many shareholders as are willing to have a conversation, including holders that voted for as well as against the proposal.

Should the pattern emerge from this dialogue that a majority of respondents share these concerns then a company should begin making changes. While bringing about change may take months or even years, the communication of this strategy must be sound. This would entail the publication of robust targets and appropriate timelines for implementation in the appropriate public filing. It is the latter process that one would deem to be responsive.

Similarly, should the company employ a governance practice that investors deem to be shareholder unfriendly, such as maintaining a classified board, then the company should consider sunsetting this practice. As stated above, most investors realize that it may take a company multiple years to resolve this structure, so communicating this effectively is paramount. Addressing compensation concerns Switching to the contentious topic of compensation, every investor has their preferred constructs, and some companies may feel like these principles do not allow for industry-specific considerations. This dilemma highlights the necessity to begin a dialogue with shareholders to determine what they prefer and what non-best practice market norms can be overcome by transparency. An example of this is the publication of financial or non-financial goal data for short-term incentive schemes, specifically the disclosure of threshold, target and max goals. Companies may claim competitive disadvantage by publishing this data, however, should an incentive program exceed target payouts, then an investor may question if the targets were even robust in nature.

This is where concise disclosure is fundamental, listing shareholder feedback and describing consequent changes to compensation structures. Equally, responding to compensation structure concerns requires a comprehensive review and follow-up statement in the necessary fillings. Should there be a historic concern with overpayment for under-performance, then shareholders will expect an appropriate response by implementing risk mitigators, reducing short and/or long-term incentive grant multiples and/or more robust goal setting for long-term incentives. Finally, some companies are still uncertain how to react to shareholder proposals that received support of above 20%. Again, engaging with investors is essential and then responding in an appropriate manner. Never miss the opportunity to state that the company is compiling the necessary information and it will be available at a certain future date.