How does engagement affect the trading and performance of an active manager?
Do engagements by active managers with their portfolio firms influence the trading decisions of their fund managers and the performance of their respective portfolios? We use proprietary data of one of the world’s largest active asset managers to answer this question. The data cover engagement contacts, shareholder votes, analyst recommendations on existing portfolio positions, daily trades of fund managers, and their over- and under-weight positions. We find that analyst recommendations are influenced by the intensity of engagement and voting against management proposals. Engagements and voting are highly correlated with changes in analyst recommendations. In response to those changes, fund managers trade significantly, leading either to (partial) exit, or to larger bets on favourable engagements. These trades are associated with significant abnormal returns, where exit decisions avoid subsequent underperformance, while larger bets are placed on outperforming stocks.