Paul Diggle
Hello and welcome to Macro Bytes the economics and politics podcast from abrdn. My name is Paul Diggle
Luke Bartholomew
And I'm Luke Bartholomew.
Paul Diggle
And today we are diving into the world of retail investors, asking how this growing and increasingly sophisticated group are seeing the investment landscape, how they are investing around megatrends like AI, how they're positioning into the US election, and importantly, how financial institutions can best engage with the retail investor community.
And there is no one better for us to have in this conversation than Carl Hazeley, Chief Analyst and VP of content at Finimize, the financial information platform for the retail investor community. Welcome, Carl.
Carl Hazeley
Thank you so much for having me. Delighted and excited to have this conversation.
Paul Diggle
So let's get straight into it. Finimize are out with the latest Modern Investor Pulse. It's a treasure trove of information about retail investor trends survey that's asking a lot of investors how they're thinking about key issues in the market at the moment. One of the headline results of the survey is that retail investor optimism remains near record highs, despite what was at times a pretty volatile summer in financial markets. What's driving that sustained optimism?
Carl Hazeley
Yeah, it's a really good question and a really interesting stat that we saw in the survey. So if I look back as far as we've been conducting this survey, so going on near three years, what we found is that retail investor optimism tends to move in lockstep with markets and in particular with the US stock market. And I guess that does make sense. You know, the US is by far and away the biggest stock market in the world. And most people were some way invested or you know their investment success is tied to the success of the US. And what we've seen over the summer is yes, there was a lot of volatility, but as that sort of selloff recovered, so too did retail investor optimism for the most part.
And as for what's sustaining that optimism, I think there are probably two, maybe three factors. I think one is the AI megatrend, if you will, despite wobbles along the way. People are still very optimistic about the opportunity in AI from a ChatGPT perspective, sure. But the impact of AI across multiple industries, potentially increasing earnings across multiple industries and reflecting that in markets over time.
The other big factor is interest rates, right. Those are coming down again. And that does create an impetus to move money into markets. Yes, maybe stopping off via money market funds if you look at some recent headlines, before getting into the stock market, but I think that is a reason, you know, to be optimistic.
Luke Bartholomew
So you talked about how optimism seems to have moved in lockstep with the increase in US equity markets and we've touched on the volatility this summer. So I'm wondering did the retail investor community as a group sort of see that period of weakness this summer as a buying opportunity? Were they able to capture the dip there?
Carl Hazeley
So yes, but maybe not as wholesale as you might have thought. So according to our data, about 33% of retail investors saw the summer volatility as an opportunity to buy the dip. The rest were, you know, by comparison, pretty dispassionate, right? They didn't see this as an opportunity to jump in and buy the dip. They also didn't see it as a reason to, you know, panic and sell out of things like stocks. You know, if I compare the results from this quarter to last, 58% said we're going to take the same amount of risk, and we're planning to take the same amount of risk as previously. Last quarter 56% of people said that. So very steady. 20% said, hey, actually, I'm reducing risk, up from 18%. So at the margin some changes, but by and large, pretty stable. And I think what's tricky often is, you know, I think we know summer is seasonally a time with low volumes and increased risk of volatility. But if you are a retail investor who isn't spending time on this in this world, hours and hours, day in, day out, that might pass you by. And so for a lot of people, it was a very worrying time. But I think where we try and add value is stepping in to say actually that most of you are not buying the dip or taking on more risk or selling out altogether, and you're sticking with your long term views and trying to be quite dispassionate about that, which I thought was encouraging.
Paul Diggle
And then then the AI megatrend then is another key support that you highlight, Carl. And actually an interesting finding in the report but perhaps not too surprising is that Nvidia remains a particularly favored single stock name for retail investors, but the AI megatrend more broadly still finds a lot of traction, clearly with both retail investors and the institutional investor base. How are retail investors thinking about that theme? Are they worried about things like elevated valuations, high concentration risk, the fact that a very small number of mega-cap tech stocks have driven a lot of what's gone on in the US equity market?
Carl Hazeley
Yeah. Great question. So every time we run this survey, we ask retail investors, hey, what single stocks are you planning to invest in? And as you rightly said, Nvidia came top of this survey. And there are a couple of things going on. I think one is you asked, you know, are retail investors worried about valuation, do they maybe think AI is in a bubble or certain stocks are in a bubble? We ask them that question – ‘do you think AI is in the bubble’? 47% said yes. A year ago we asked, ‘do you think AI is overhyped’? A third said yes. So more and more, despite, relatively strong performance of that basket of stocks, people are worried that there is a potential bubble. Now, that doesn't necessarily mean that they're not investing in these stocks. It doesn't necessarily mean that they're ‘dumb money’ either. Right? You know, the last to get out when the tide turns. It does mean, like you rightly said, that there are reasons to be cautious in the near term. But what we find when we dig into this is that, you know, the big advantage that retail investors have, and every single person listening to this conversation has, is that their time horizon isn't December 31st, right? They can invest and do invest for multi-year periods. And so if you believe this AI megatrend has years and years of opportunity no matter what shape that takes then yes you know, near-term caution doesn't stop you thinking about the long term opportunity. And that's a massive advantage retail investors have versus perhaps the institutions who need to think of things on a year-by-year basis.
Paul Diggle
Yeah, we've talked a few times on the podcast before about both the risks that concentration brings. But also that this technological revolution has hallmarks of past industrial revolutions or general purpose technologies that have potentially transformative effects across the economy. So it does seem like it is a megatrend that will continue to shape markets over multi-year time horizons. But perhaps talking about a slightly shorter time horizon, we’re a little more than a month out from the US presidential election. The report finds that a majority of retail investors think that a Trump victory in that election would drive stocks higher. I also found it interesting that a majority of respondents thought that, a Harris / Democrat victory was more likely than not. So, you know, really interesting findings. What's influencing, do you think, the expectation retail investors have that Trump means equities up? And how are they thinking about the election more broadly?
Carl Hazeley
Yeah it's a an interesting subject and it's always tricky trying to tease out the difference between, you know, political views and economic perceptions. And I think where we've managed to get to with this is there's a perception in the US, and funnily enough in the UK because we asked similar questions around the UK election earlier this year, that Conservatives are better for the stock market. Now, we've got pretty conclusive data in the UK that suggests that there's not much true about that. And, you know, there's not much to choose between the parties in the fullness of time. And so I suspect that's it's simply that Conservatives historically have been in government longer and stock markets go up over time. And so people are perhaps attributing a causal relationship where there is a more simple correlation. Right? I think in the US, perhaps it's a similar story and perhaps it comes down to tax cuts. I think that's a relatively easy story to tell. If one party is saying we're going to cut corporation tax and cut personal tax, and it's potentially harder to tell the opposing story that potential tariffs, which is a, you know, an economic minefield, could offset any benefits from mooted tax cuts. So it's a tricky thing to unpack, but I think those are the things going into it.
Paul Diggle
Yeah. So a super active debate I mean for all investors - whether Trump means equities are higher because we can kind of be a little bit more certain about some of the other possible impacts. In terms of yields up, dollar up. And that's how the markets wanted to trade Trump say, around the assassination attempt, where his implied winning odds went up a lot. So you know, the first debate with Joe Biden and then conversely, in the opposite direction in the debate against Harris. When Harris entered the race, Trump’s odds go down. You can tell from market moves how the market wants to price Trump. The bit that’s unclear is how does it see the equity market impact? Because there are, as you say Carl, arguments in both directions. Tax cuts, deregulation, the fact that the first half of his first term was pretty positive in risk markets, argue for stocks higher. On the other hand, possible trade war, let alone potential interference in the Federal Reserve could mean stocks actually sell off.
And internally, the way we want to come at this is through different scenario analysis and kind of stress testing portfolios’ resilience to these alternative outcomes.
Carl Hazeley
Exactly. And I wonder whether, and in fact I know that this will be present in the work that you do, but one of the nuances in the comments that came along, responses to the question on our side, was ultimately that, yes respondents can answer that question, but it does come down to what happens with the Senate and the House as well. And so, you know, a Trump presidential win hamstrung by a Democratic House or Senate or both, potentially, you know, mixes up the mix, if you will, and makes it even harder to figure out what might get through and what might not. And so, yeah, it's a really tricky question to unpack and, yeah, your scenario analysis, historically, look at all the ways it might play out and would give a good answer there.
Luke Bartholomew
All right then, well shifting gears a little bit from how retail investors are thinking about some of the issues facing markets at the moment and talking a little bit instead about them as a group of investors, some of the interesting features of them as a group, perhaps a good place to start is just if you could talk to us a little bit, Carl, about the role of Finimize within the retail investment ecosystem, the kind of role that you guys think of yourselves as playing in that system?
Carl Hazeley
Yeah, absolutely. I might get on my soapbox here for a little bit. So, please feel free to knock me off. I think our industry by and large, takes mid-level complicated stuff, right? We simplify it so we understand what's going on and we can talk about it between ourselves, and then we dress it up, make it a little bit more complicated than it needs to be. And that's historically how financial services makes a margin. And our bet at Finimize is that we can be successful - but generate success for others - by just doing the first half. Take that mid-level complicated stuff, simplify it so that we can all understand it and talk about it, and then put that into the world. And so our bet is that through our content, we can empower people to make more informed financial decisions. And if we do that, we can achieve our mission, which is to increase the net worth of an entire generation.
Paul Diggle
What do you think that means for traditional, large financial institutions, then, in terms of how they engage with and support new investors? I mean, previous versions of the Modern Investor Report have highlighted things like first time investors often look to friends, family, for kind of investment insight, advice, guidance, rather than, on the one hand, something like social media or Reddit as the kind of stereotype might go. But on the other hand, they're also not overwhelmingly turning to traditional financial institutions. So how do large financial institutions navigate that kind of environment?
Carl Hazeley
Yeah, I think we as a business and me certainly personally, I've definitely come on a journey, been on a journey, in terms of thinking about that. I think, you know, when I joined Finimize when we were just getting started, I thought we were quite adversarial to the traditional, the established, industry. Because like you said, people weren't necessarily engaging with the content that the establishment was putting out there. But I sort of came to realize that if we want to make a bigger impact more quickly, what we should be trying to do is help the financial services industry as a whole, help individuals make more informed and better decisions because, you know, whether it's good or bad isn't for me to say, but everyone's got a relationship with their bank, and for the most part, they trust their bank. Now, they don't perhaps trust their bank when it comes to investing – and that creates the opportunity - but if we can help financial services better engage their customers, it helps us achieve our mission, but commercially it makes sense for the entire industry. Right? Because better educated investors churn less, are better customers, are more valuable. And so, I think there are two big things any institution can do - and that's based on our research - it's also based on our experience. One is, you know, meet investors where they are. And what I mean by that is, as an institution, your message, it doesn't really matter. What matters is what your customers or your prospective customers want and need. So, if they are all talking about AI - find a way to be in that conversation and remind them, hey, we have something interesting to say, something relevant to say as well. And when it comes time to, I don't know, whether it's remortgage or open an ISA or do something a bit more exotic, you'll hopefully have earned their trust, and it's pretty, unrealistic to think that you'll be, you know, the family and friend or trusted colleague that actually helps get someone started, but you shouldn't be too far behind if you are a trusted source that's not clearly at every opportunity being like, oh, hey, you know, come and interact or transact with me.
And then the second is just to be more tactical and be a bit more thoughtful, especially with data. So what we found is that content consumption is a way better indicator of what somebody is likely to do than their demographics. So, what does that mean? It means if you were a 50 year old man and you have been working for 30-odd years, but you haven't been saving, you haven't been investing, you haven't thought about your pension, you might be looking for the same sort of content as a 20 year old in university who wants to get into the finance industry. You might be trying to get your start, understand the basics and build up right? But historically, traditionally, you know, whatever word you want to use, an investment management firm or a wealth manager or a bank would give those two people completely different sets of content. You get the beginner stuff as the 20-year old and the retirement planning, you already know what you're doing, as the 50 year old ,sort of thing, and it's useless. It doesn't work. And so then you end up, you know, going down a rabbit hole, sort of ruining the experience for everybody. But if you look at what people are doing, what they care about, that will tell you if someone's an expert or a beginner, if they are investing in their pension or buying meme stocks or whatever it is. But that's how you start to have the right conversations with the right people at the right time. And there's a huge opportunity to do that.
Luke Bartholomew
So then, perhaps related to this theme of disruption of the traditional financial services industry, one of the things that I was interested in in the report is perhaps despite stereotypes or preconceptions, whatever it might be, that less than 10% of retail investors make their first investment in cryptocurrency. So what do you think this tells us about risk appetite and the investment strategies of retail investors?
Carl Hazeley
So tells me quite a lot. And I think, you know, one of the arguments I make quite a lot is that retail investors are sophisticated, and they just don't get the credit for it. And you know, Paul, you said up top, you know, they're getting more and more sophisticated. Absolutely right. You know, what we know is that new investors start cautiously and ramp up the amounts they're investing. And sometimes with risk the more informed they become. So again, going back to our data, 36% of investors who now say they plan to invest at least 10,000 dollars, over the next 12 months, started off investing less than $500. So there's a big ‘land and expand’ sort of opportunity here. And if I bring it back to, you know, crypto and some of those riskier assets, it's a massive opportunity to take that $500 newbie, bring them on the educational journey, and you'll be surprised how quickly they become sophisticated, given access to clear, helpful information, data. And, you know, over time, if crypto’s the way they want to go, they absolutely will.
Paul Diggle
Do you see gender differences in how retail investors invest, Carl? I mean, it's a really live question in the institutional investor community, whether male versus female Fund Managers invest and risk-manage in different ways. I see in the report there's discussion of how marriage affects couples’ investment decision making. What can the data tell us there?
Carl Hazeley
Yeah, I think it's funny in the institutional side, I don't know if it's still true, but there was certainly a period when there were more Portfolio Managers named Dave or David than there were entire women Portfolio Managers in the industry. Hopefully that's no longer the case and there are more women, maybe rather than fewer Daves. I'm sure the Daves are doing a good enough job. But when we've looked at this - so back in 2018, we did research, on this, and we found, first up, that women are better investors than men. And so we revisited some of those questions this year and what we found was that women were more likely to buy into ETFs or managed funds than men. Men were more likely to go into single stock. But actually, performance aside, the female investor community, while I guess on the surface of it, if I could put it that way, seems like a smaller group. They are worth their weight in gold. Couple of reasons for that. One is that our data showed that women were more likely to, and maybe this comes down to the risk-tolerance or consideration. But were more likely to be investing large amounts of money than men – so 10K or more. If you're a woman, you're more likely to start off with a bigger amount than a man. And so again, if you're a financial services institution, you want to be getting those sorts of customers. And you touched on marriage, I think one big stat that we were talking about literally in the office today, was that married couples tend to, not tend to, do invest more or have seen an increase in the amount they invest following getting married. Now, what we haven't proven just yet is whether that's just a mean reversion to normal investing styles and habits after spending somewhere like £30,000 on the average wedding in the UK. Either way, it's a good thing that they are investing again after getting married.
Luke Bartholomew
All right. So finally then Carl, we've talked a little bit about some of the near-term risks that are top of mind, both for institutional and retail investors. But looking forward a little bit into 2025, I mean, what trends or events do you think retail investors should keep an eye on?
Carl Hazeley
Yeah, that's a lot to watch out for. I think on the one hand I almost want to turn the question back to you I think. You know, interest rate dynamics, geopolitics is setting the scene for a very interesting 2025. But maybe from a retail investor point of view, a couple of things worth watching. Firstly, I think the rise of alternative assets and more complex products like options. So, you know, we've talked about this a little bit, but worth reiterating. We've seen retail investors grow up. You know, they're not meme stock traders. They're becoming or maybe they've always been more sophisticated. But simply access to better content, data, services, tools, means they can put their sophistication into practice. So if I rewind to 2018, 2019, right, there was a massive influx of zero-commission investing services, fractional shares investing services, that was, you know, all the rage pre-pandemic and obviously played out during the pandemic. And so I'm excited by the disruption and the opportunity for retail investors getting into spaces like alternatives, getting into spaces like options through platforms and ways that agian give them access to stuff that's simply been gate kept for far too long.
Luke Bartholomew
All right. Well, I think that is all we have time for this week. So as ever, please do allow me to make my ask that you like and subscribe wherever it is that you choose to get your podcasts. And then all that remains is for me to thank Carl for joining us today, for the excellent conversation, and to thank you all for listening. So thanks very much and speak again soon.
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