The Rise of Retail Investor

There is a saying that goes along the line of: while the intellectual but weak grows, the wise and strong stagnates. This article has been written in consideration of the “Future of Finance: Waking Up To The Retail Investor” event presented by Finimize for Business which Reign Capital ́s Founder & Managing Director, Valdemar Martins Da Silva and Director of Corporate Strategy and Business Development, Adyjair Santo attended. The guest speakers were BlackRock’s Managing Director and Head of the UK Banks and Digital Channels Business Joe Parkin, J.P Morgan Chase’s Managing Director, International Consumer Shaun Port, and Interactive Investor’s Head of Investment Victoria Scholar.

Leaders of BlackRock, J.P Morgan and Interactive Investor in an event hosted by Finimize on Wednesday, April 12th 2023.

In recent years, there has been an exponential increase in the number of investors around the world - majority of them being retail investors.

Many are the reasons as to why so many investors are being born. It ranges from the easy access to information and technology and books such as "Rich Dad, Poor Dad", to watching financials influencers on social media pages showing the supposedly "easy and good life of an investor", and providing advise on how to retire young.

The pandemic has also played a huge part in shaping this outcome, as many individuals while in lockdown had spare time at hand to shift their attention to learning new things. This was enough fuel to push the price of Bitcoin and Gamestop to where they were two years ago - a paragon of retail demand power.

How should firms prepare for this surge of retail investors?

1. Catch the attention of retail investors. The new retail investors are a flashy bunch and most often than not with unrealistic expectations and comprehension of how financial markets are and crave “shining – meme stocks” objects;

2. The second thing after having caught their attention would be to probably re-educate them. The retail investors space, which are up and coming, still have lingering feelings, objectives and perception around the financial markets. Shaun Port stated - "this is not a game", so educational materials which aid them in goal-setting, perception-modification and habit-creation that nurture a good and stable mindset for the years ahead are paramount to keep, consolidate and build trust between the investor and the fund manager.

3. The third thing would be to prepare some sort of new financial product or new actionable plan on how to achieve their goals - which was beautifully articulated by Joe Parkin. We all ought to expect an evolution and the birth of new financial products that shall fit the incoming investor’s needs.

New People, New Opportunities and New Risks

With new aspiring investors entering the financial markets, it is wise to expect new turmoil, themes and opportunities to arise as well.

The thing is, with new blood comes new inventions. We can expect new asset classes, new strategies, new fund structures and new investment companies to arise from this shift. This also brings forth potential scenarios for policy implementation and therefore the enforcement of ESG and Corporate Social Responsibility.

Risk

Victoria Scholar - mentioned that in times of turmoil, the data she gathered showed an increase in inflows to Exchange Trader Fund (ETF). This is because by investing in ETFs, investors are able to diversify their portfolios more efficiently than doing everything themselves. Creating therefore a bigger risk of consolidated loss and widespread loss should the asset held by ETF decrease.

Shaun Port - mentioned that bonds are boring and used to pay very little interest rate, which may very well be why there was few interest in them. Now that these same Bonds are paying higher yields, the retail investors, which were unable to and lacked interest in the asset, shall now crave it. And one of the ways to be exposed to Bonds is through ETFs, creating more concentration of money into ETFs.

Joe Parkin- mentioned that Victoria Scholar content helped to change the current landscape of financial markets and the conversation with new investors. New investors lack understanding of certain keywords or names, therefore, leading some to feel uneasy prior to investing. So, with new blood in town, there shall appear new content creation that aids in solving this particular matter.

Opportunities

The new retail investors may provide an environment for the creating of new fund strategy or structure such as female-only fund managers for leveraged fixed income asset or investment trust - as data from Victoria Scholar suggest they tend to invest more in these types of assets.

ESG and CSR Policy enforcement and more ESG types of Investment vehicles - as Shaun Port mentioned that he has met investors who stated they would not invest unless it was ESG.

The development of new technologies which aid investors in their daily tasks, making platforms more user friendly which leads to better understanding of financial market products and information sharing.

My opinion

Regarding ESG and CSR, I agree with Joe Parkin when he mentioned that there are various opinions out there. Although there are some funds which are booming due to ESG, but many investors very simple do not care, so this is where law enforcement comes in.

I most definitely vouch for and sponsor the advancement of technologies, although they come with a risk annexed, they solely ought to be managed well in accordance with the potential risk and implications they provide and not be launched in the market before proper due diligence are made and ways of controlling them are in place.

Bonds are definitely something that should be more in retail investors’ minds. Understanding it leads to better financial decisions. But, due to Bonds being set up for corporations, and the entry-level is high for individual investors, I think it shall be a very long time until it actually becomes a main topic in retail investors conversation.

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