What lack of retail investor confidence?
That’s the answer Credit Suisse analysts came up to with to the question, “Has the retail investor lost confidence in stocks?” Hell no, they surmised in a recent research note.
The analysts wrote in their May edition of “Quantitative Insights” that despite talk of flagging investor confidence and increased scrutiny of market participants, data from retail brokers show that the smaller investor s more engaged in the equities mart than ever. To support their conclusion, the analsyst point to several indicators that point to retail Mom and Pop investors buying stocks:
1) NYSE margin debt, a measure of retail borrowing, is at an all-time high of over $450 billion.
2) Trading activity in retail accounts is also at an all-time high while net new assets have been steadily increasing every quarter since 2010.
3) Mutual funds and exchange traded funds have received net inflows for two straight years.
Ana Avramovic, analyst and contributor to the report said given these examples facts, plus the fact that the S&P 500 index is near its all-time high of 1900, retail is actively pursuing stocks as an investment strategy.
In looking further into the ETF phenomenon, analyst Victor Lin reported that over the past few months, he has seen two specific trends reflected in the ETF market.
First, is the move by investors from a growth to value strategy. “Investors have shown a strong preference for value funds over growth funds,” Lin noted. Value was in vogue with IVE (iShares S&P 500 Value), IWD (iShares Russell 1000 Value) and VTV (Vanguard Value) all attracting over $500 million of net creation activity in April. Year-to-date, value funds have attracted over $4 billion of inflows while growth funds have suffered outflows of more than $3 billion, “And worse if we just focus on the period since the end of March,” he wrote.
Second, is investors’ preference for large cap over small cap funds. Lin noted that riskier, higher beta, segments of the domestic market like small caps and consumer cyclicals (and recently, tech and health care) have had the largest outflows.
The complete report is available through Credit Suisse.
