AUSIEX's inaugural investor trading report told us a lot of what we already know: young, cashed-up, time-rich self-directed investors stormed financial markets in 2020 seeking to capitalise on the covid-19 crash.

But a year on from the sharp market rebound, it's useful to put some concrete numbers on the rising influence of retail investors, and recognise that their trading habits can be widely different from advisers. According to AUSIEX's head of markets and client solutions Mathew Tilley, they aren't going anywhere.

"We believe that the rise in self-directed investors is here to stay, although we feel that the highs of last year won’t be readily replicated," Tilley told a media roundtable on Monday.

AUSIEX is a wholesale broker and formerly the wholesale arm of CommSec. The company was acquired by Japanese consulting firm Nomura Research Institute in May this year.

Chief executive Eric Blewitt added that the wholesale broker saw an increase in the number of investors across all segments—advised and self-directed—and a demographic shift as more young investors and female investors entered the market—particularly via exchange-traded funds.

"This is the first time in recent memory that the market has undergone a step-change in investors," he said.

The “Trading Transformation” analysis looked at trades executed by self-directed investors on an institution’s trading platform operated by AUSIEX, between November 2019 and March 2021. The company declined to disclose the names of the platforms but advised that the self-directed data captured in the report represents 10 per cent of Australia’s retail online broking market.

Let's look at some of the key findings.

  • Many retail investors started during the pandemic

Between March and May 2020, a record number of self-directed trading accounts were opened (via institutional trading platforms operated by AUSIEX). Average monthly account openings during this period were 450 per cent higher than the preceding 27 months.

These figures reflect earlier data from the ASX which showed that 23 per cent of Australia’s 9 million equity investors began investing in the past two years.

Tilley says Australians confined to their homes in lockdown used the time to learn about and participate in the market. He also attributed the rise to "constant mainstream news" about the steep rise and fall in markets, lock-bottom savings rates, as well as FOMO (fear of missing out) and hype from social media personalities.

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“The volatility offered many opportunities for investors who were willing to step into the market, and they were really spoilt for choice for help to do it," he says.

"We saw more organisations targeting the retail sector, including offerings that tried ‘‘gamifiying’ the investment world and those providers that aimed to reduce the barriers to entry with micro-investing offerings.

  • Surge in young traders

Even before covid, there were hints of a boom in young self-directed investors. Between November 2019 and February 2020, Boomer and Generation X investors fell from 83 per cent to 56 per cent as a proportion of total clients, due to the entrance of younger investors.

Then the pandemic kicked things into another gear. On 1 November 2019, only 1 per cent of self-directed clients were under 25. This increased by 250 per cent by March 2021. And by the US election and Q1 2021, one in six new clients were under 25.

"While this generation may have been hampered by some unfavourable economic circumstances, such as diminishing household affordability, this demographic has increased disposable income and a strong values-based approach to investments," Tilley said.

"Meanwhile, trading is becoming easier and more affordable than ever, increasing the ability for younger generations to participate directly in the market.”

  • Self-directed investors moved first on inverse ETFs

Inverse ETFs – funds that seek to profit from a decline in the value of an underlying benchmark – soared in popularity last year, but it was self-directed investors leading this trend. Advisers waited until at least March 2020 to pile in on behalf of their clients.

Self-directed investors bought in early to maximise the returns when the market collapsed, the analysis found. By November 2019, two inverse ETFs—BetaShares’ Equities Strong Bear Hedge Fund (ASX: BBOZ) and US Equities Strong Bear Hedged Fund (ASX: BBUS)—were among the top 10 ETFs bought by self-directed investors.

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Overall, trading of ETFs increased in the post-March 2020 period. Among retail investors who opened accounts during the pre-covid period, ETF trading increased from 17 per cent 26.9 per cent. Self-directed investors also boosted trade in ESG ETFs during covid-19, catching up with the advised (platforms) investor trend, and thematic ETFs.

  • Buy-now pay-later stocks soared in popularity

Self-directed investors jumped on the buy-now, pay-later sector—much more so than advisers. Advisers went from 1.7 per cent of accounts trading BNPL stocks like Afterpay (APT) and Zip Co (Z1P) to 3 per cent of accounts during 2020 whereas self-directed investors went from 6 per cent to 26 per cent.

“Self-directed investors are the users of buy now, pay later products and they are following basic investment principles by investing in the brands that they know and trust," Tilley said.

  • Appetite for growth, small-cap stocks

Pre-covid, 60 per cent of self-directed accounts traded outside of the ASX 200, but during lockdown, this rose to 76 per cent. AUSIEX says this indicates an increasing appetite for value outside of large caps. But not for all demographics. Female traders were less likely to take risks with stocks outside the ASX 200.

AUSIEX says self-directed investors were far more active in trading with a 60:40 ratio of buys to sells. Advisers stayed the course.