A 3d printed Robinhood and Reddit logos are seen near one dollar banknotes in front of displayed GameStop logo in this illustration taken February 8, 2021.
Dec 16 (Reuters) - Retail investors are doubling down on Exchange Traded Funds (ETFs) as rising interest rates and volatile markets curb their appetite for risky assets such as meme stocks, SPACs and cryptocurrencies.
Global financial markets have taken a beating as central banks try to combat runaway inflation with aggressive rate hikes, thereby ending years of loose monetary policy that had underpinned a record rise in the prices of such assets.
Vanda Research highlighted a largely risk-off sentiment among investors in its latest report by pointing to a 4.4% year-over-year drop in single-stock purchases by retail traders to $173 billion even as inflows into ETFs rose nearly 14% to $116 billion.
On average, retail investors' portfolios are down about 39% in 2022 after recording gains of 18% in 2021, JPMorgan analysts Peng Cheng and Emma Wu said.
"The ethos is really starting to spread in the retail investor community that if you want to build wealth through your investments, take a long-term view," Maximilian Rofagha, chief executive officer of Finimize, an abdrn-owned insights firm, told the Reuters Global Markets Forum (GMF).
Finimize's recent survey of 2,300 retail punters showed that despite their worries of a recession, only 1% wanted to exit their investments, with about 65% planning to continue investing and 29% aiming to invest more despite the cost-of-living crisis.
The investment trend, however, is leaning more toward ETFs tracking broader markets and away from the meme stock frenzy of 2021 that saw retail investors banding together on social media forums to fuel eye-popping gains in GameStop (GME.N), AMC (AMC.N) and others. Shares of GameStop and AMC are down 63% and 45%, respectively, this year.
S&P 500 index-tracking SPDR S&P 500 ETF Trust (SPY.P) is the most purchased U.S. security among equities by retail investors this year, attracting $26.4 billion in inflows, compared with $17.7 billion last year, Vanda data showed.
Other top five purchases include Nasdaq-100 index-tracking Invesco QQQ Trust (QQQ.O) as well as the ever-popular shares of Apple Inc (AAPL.O), Tesla Inc (TSLA.O) and Advanced Micro Devices (AMD.O).
The sudden spike in borrowing costs, soaring inflation and fears of a looming recession have weighed on the ability of the Americans to stomach wild swings in stocks this year.
"We don't expect any speculative bursts to hold without a sustained rebound in both their portfolio and across the market," Vanda Research analyst Lucas Mantle said.
Retail investors' average daily trading volume in U.S. stocks has amounted to $13.8 billion so far in 2022, compared with $14.2 billion a year earlier, which was the peak of meme stock trading frenzy, according to the report.