Euronext Corporate Services’ Head of Advisory & Investor Relations Solutions, Nicolas Meunier, was joined by Karen co*ke and Simon Bennison from communications firm Emperor to discuss the rise and impact of retail investors. They examined the reasons behind the increased number of individual shareholders, how they are challenging companies to think differently and how issuers should communicate with their newfound retail investor base.
What caused the rise in retail investment?
Not only have numbers of retail investors grown in the European markets but so has their trading activity. In France alone, between Q3 2019 and Q3 2021, the amount of individuals on the markets grew by more than double, rising by 1.5 million to reach a total of 2.5 million. Belgium also saw a 50% increase in the number of active retail investors over a two-year period from Q1 2019 to Q3 2021.
Nicolas Meunier explored the reasons behind this trend. He discussed how previously low interest rates had seen many individuals turn to the markets for a better return on their cash, and that many people think they can improve on low yields on fixed income securities.
Activism is another potential driver, with an example being the Gamestop saga where individuals worked together to try and impact the returns of hedge funds that were short selling a company’s stock. The impact of investments on ESG matters is also an important factor.
All of this, combined with the opportunities provided by fintech and digital investment developments and the large number of flagship IPOs, has attracted retail investors to the market. The pandemic also provided an opportunity to research trades that would maximise return on investment.
Profile of retail investors
The statistics show that the new breed of retail investors is predominantly young, with the average age of new customers at online brokers standing at 36. This compares with an average age of more than 50 for the rest of the investment population and feeds into the view that they are more likely to be informed about trading by social media rather than traditional investment banks.
Retail investors are less risk averse than their parents, they want to find out about companies other than just the blue chip firms and from a range of sectors, with societal impact in mind when making investment decisions. These new investors have been found to be particularly interested in a company’s mission and purpose.
Not only did retail investors become increasingly active in March 2020 when COVID-19 hit, but they remained active, showing their long-term approach to investment. At the same time, the average trade size has dropped. Nicolas Meunier believes that this shows that retail investors are diversifying the risk of their investments.
Benefits and risks for issuers
There are pros and cons of this increase in retail investment for issuers.
Benefits include:
- More long-term investors
- Added liquidity
- An increase in the ambassador effect for your brand
Risks include:
- A potential increase in vocal detractors to counter the ambassadors
- Difficulties in creating a direct dialogue and engagement
- High-risk behaviour, fuelled by social media etc.
How to communicate with retail investors
Emperor's Senior Consultant Karen co*ke and Head of Digital Strategy Simon Bennison discussed the ways in which companies can appeal to retail investors and engage them.
Karen co*ke mentioned the way that bank HSBC uses its social media platforms to campaign and raise awareness of social interest topics, whilst Simon Bennison referred to energy company SSE’s campaign to enlist customers to add their signature to the turbines at an offshore wind farm. This created publicity and elevated the company’s ESG credentials.
Another example of issuers embracing an approach that engages retail investors was AstraZeneca. The pharmaceutical firm uses its website and social channels to showcase its people and their role in the company’s success. Showing the human side of the business is key for issuers who want to truly speak to this new breed of investors.
Next steps for issuers
For issuers looking to engage retail investors, here are five steps to take:
- Define your purpose to help them understand what makes you different
- Connect them to your whole company story, beyond just the financial results
- Be consistent and authentic in your content to make your message accessible
- Empower employees and customers to advocate for your brand
- Position your messaging to attract the widest possible audience. People want to see themselves being represented in your communications.
Conclusion
Retail investors are here and will remain in the long term. They require investor relations officers to adjust their communications strategy, as they differ in approach from traditional shareholders. To learn more of the findings from the webinar, watch the full event on demand.
To truly understand your shareholder base, you can engage Euronext Corporate Services’ Shareholder Analysis for a strategic, data-driven and dynamic view of your capital structure. Request a demo for your company today.
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FAQs
Retail investors have a significant impact on market sentiment, which represents the overall tone in the financial markets.
How could increased retail investor participation benefit companies and the market? ›
The teeming secondary market that did not exist a decade ago is also changing the dynamics. Retail participation is driving more price efficiency, simply as more trades take place. Retail investors are voting with their dollars and even their bids are helping create a more holistic view of investor sentiment.
What percentage of the market are retail investors? ›
Retail Participation Accounts for 20% of U.S. Stock Market Activity. Retail investors are key players in U.S. stock market. At 20%, their activity is significant and can influence market trends and movements. Institutional and other entities dominate market activity.
Why are retail investors called retail investors? ›
Retail investors are non-professional individuals who invest money in their own accounts through brokerage firms. Retail investors may manage their own accounts, or hire a professional to guide their investment decisions. Retail investors typically make smaller transactions compared to institutional investors.
Do retail investors beat the market? ›
Retail investors can beat the markets by selling during euphoric patterns using trailing stops. This can help them lock in profits before the stock price collapses, avoiding significant losses in the process.
What percentage of retail investors lose money in the stock market? ›
90% Retail Investors Lose Money - Rediff.com. Only the top 5 per cent profit makers account for 75 per cent of profits. Saad Bhakshi, an aspiring pilot, is addicted to stock market investing.
How do retail investors make decisions? ›
Idea discovery is passive for most retail investors. They typically curate their “information diet”, a stream of information they can scan through as part of their morning routine – from the news, social media, newsletters, and friends. The more sophisticated the investor, the more curated their information feed.
What is the Increasing Opportunities for retail investors Act? ›
3948 - Increasing Investor Opportunities Act. Allows certain types of publicly available investment funds to invest in private funds. This allows retail investors to invest in potentially high-yield private funds by investing in a fund with all the protections of being traded publicly. Senator Steve Daines (R-MT).
What are the benefits of being a retail investor? ›
Retail investors have the advantage of being able to wait for the right market conditions before investing. They are not required to be fully invested at all times, which means that they can sit out of the market during times of high volatility or uncertainty.
Which stocks have the most retail investors? ›
- IRFC | Rise: 435 percent | Market Cap: Rs 1.74 lakh crore. ...
- Suzlon Energy | Rise: 412 percent | Market Cap: Rs 55,000 crore. ...
- Zomato | Rise: 258 percent | Market Cap: Rs 1.61 lakh core. ...
- Reliance Power | Rise: 184 percent | Market Cap: Rs 10,758 crore.
3-10% for the average retail investor with a portfolio of stocks, bonds, ETF, mutual funds, and the like. On the higher side if more exposed to equities (and you or your advisor knows what they're doing), lower side if more exposed to bonds/fixed income. This is long term average.
Can retail investors make money? ›
However, retail trading is also hazardous and challenging, and most retail traders end up losing money. According to various studies and reports, between 70% to 90% of retail traders lose money every quarter.
Why are retail investors called dumb money? ›
Because these investors don't have access to teams of analysts or carefully compiled data, they often make trades based on instinct or a gut feeling. Consequently, the “dumb money” group tends to buy and sell investments at the worst possible time.
What are the disadvantages of retail investors? ›
- Limited Resources: Retail investors may have limited capital to invest, which can restrict their ability to diversify and manage risk effectively.
- Limited Access: They might not have access to certain investments, such as private equity or hedge funds.
Retail investors are sometimes also called individual investors or retail traders. These are non-professional investors who purchase assets such as stocks, bonds, securities, mutual funds, and exchange traded funds (ETFs).
What are retail investors in stock market? ›
Retail investors are investors who invest their own savings directly in the stock market, even though they are not trained or certified, in order to enhance personal earnings. NSE data shows that in the five years between 2019 and 2023, over 120 million investors were registered.
What does retail investors mean in stock market? ›
What exactly is a retail investor? Retail investors are sometimes also called individual investors or retail traders. These are non-professional investors who purchase assets such as stocks, bonds, securities, mutual funds, and exchange traded funds (ETFs).
Can retail investors make money in stock market? ›
By investing in shares, one can expect to earn through capital appreciation, i.e., on the gains made on the capital (principal invested) when the share price rises. The gains or the profits from shares can go as high as 100 percent or more. There is, however, no guarantee of capital appreciation.
How much stock is owned by retail investors? ›
They are somewhat similar to Traditional Investors in owning individual stocks (20%), mutual funds (20%), ETFs (13%) and cryptocurrencies (10%, which is half the Traditional Investors cohort), and are more likely to own government/ municipal bonds (8%) than Nascent Investors or Traditional Investors.
