One of the joys of managing your own investments is that you don’t suffer the constraints that professional investors have to deal with. Generally, as a do-it-yourself (DIY) investor, your only major constraints are time and cashflow. 

Professional investors might have more sophisticated tools and resources, but they are generally only able to invest within a specified universe and are benchmarked monthly, quarterly and annually against their peers. As a DIY investor, you can invest in whatever you choose, and the only benchmarks that matter are your personal goals and objectives. 

[Editor’s Note: This report is based on an analysis of aggregate customer behaviour through nabtrade’s investing platform. In this article, the term ‘investor’ refers to nabtrade customers. The term ‘volume’ refers to trades via nabtrade. Readers should not interpret the eight trends below as recommendations of stocks, investment products or strategies. They should seek advice from a licensed financial adviser or do further research of their own before acting on themes in this article.]
 

1. Cash is king

Retail investors have stayed focused on their objectives in 2022. The clearest signal that investors were not going to chase returns in an increasingly challenging environment is the steady increase in cash held by investors from late 2021 up to now. 

Nabtrade’s cash allocation is currently at a record high, and has been growing all year, with the exception of small outflows in June when the S&P/ASX 200 Index bottomed and investors took the opportunity to top up preferred holdings. 

This contrasts with 2020, when COVID-19’s impact became apparent: cash outflows peaked as investors took advantage of dramatic falls in share prices across the ASX and global markets more broadly.
 

2. Wealth preservation in vogue

There has also been a significant shift in focus from bargain hunting in 2020, when buys accounted for 80 per cent of all trades placed on nabtrade from March to June, to wealth accumulation in 2021, to wealth preservation in 2022. 

The proportion of buy trades has fallen steadily as the sharemarket climbed during 2021, and then wobbled in 2022. 

Generally, you would expect to see more buying than selling over time, as investors are growing their wealth (and retirees generally attempt to preserve, rather than draw down, their capital). So, even short-term increases in selling tend to indicate genuine concerns about the future direction of share prices. 
 

3. Volumes down

Another significant indicator of investor reticence is a significant fall in trade volumes [on nabtrade] over 2022. Volumes are now roughly half, on average, of those on the most traded days of 2020. Given that total investor numbers have doubled since pre COVID-19, this is telling. 

A fall in volume doesn’t necessarily indicate bearishness, but it clearly indicates that investors are not seeing a great deal of value on the sharemarket, and are not going to chase returns. 

The pullback in markets has been relatively modest compared with the COVID-19 crash in March 2020, and investors are no longer excited about “buying the dip” when a rising interest rate environment has increased headwinds for equities. 

With cash accounts paying 3 per cent or more, the potential downside risk in sharemarkets is less palatable than it was when interest rates were close to zero, in nabtrade’s opinion.
 

4. Younger investors retreat

In addition to lower trading volumes, different types of investors are responding differently to this market. Most new nabtrade investors over the last two years have been buying Exchange Traded Funds (ETFs) to hold for the long term, rather their trade their cash away on ‘YOLO stocks’, as popularised in the United States. [YOLO stands for “You Only Live Once” and is a term given to speculative trades where people go all in, hoping for a large return]. 

However,  young investors have largely gone to the sidelines in 2022, based on nabtrade data. They are generally still holding their COVID-19 share purchases, but are less likely to trade than older, more experienced investors who are continuing to find opportunity despite the volatility. 

Interestingly, some of nabtrade’s most active and sophisticated traders are more active than ever. But this appears to be a market that favours experience over enthusiasm.
 

5. Stocks in focus

The range of stocks traded via nabtrade in 2022 has also narrowed significantly, relative to previous years, and is focused mostly on just two sectors – materials and energy. 

Fortescue Metals Group (ASX: FMG) remains popular with nabtrade traders as a pure iron-ore play, while BHP Group (ASX: BHP) is simply too big to ignore. 

Beyond these two, however, the battery metals sector is the big favourite for nabtrade traders and investors. Lithium producers and hopefuls have featured heavily in the top-10 traded stocks throughout the year, with Pilbara Minerals (ASX: PLS), Core Lithium (ASX: CXO) and Allkem (ASX: AKE) the most favoured on nabtrade. 

These lithium stocks have the advantage of being liquid enough to attract the attention of traders. They are at the forefront of a long-term trend in decarbonisation for investors, although the trade sizes remain relatively modest, suggesting this sector is not a core holding for most.
 

6. ETFs

The most consistently bought investment product on nabtrade is Exchange Traded Funds (ETFs). Vanguard’s Australian Shares Index ETF (ASX: VAS) is the most popular with nabtrade customers.

Investors are clearly watching daily price movements as buying spikes dramatically when the S&P/ASX 200 index is sold off, and falls away on strong days. 

For accumulators, this is a clearly a long-term wealth creation strategy; most of these investors are young, do not actively trade their holdings and focus on one or two specific ETFs to build their portfolio.
 

7. Financials

Financials are popular with income-focused investors who seek fully-franked yields from the big four banks.  

Of the big four, Commonwealth Bank (ASX: CBA) is the second largest holding among nabtrade customers. National Australia Bank (ASX: NAB) is nabtrade investors’ largest holding and Westpac Banking Corporation (ASX: WBC) has been the most popular bank buy over the last 18 months. But volumes in bank stocks are well below average, on nabtrade.
 

8. Limited bargain hunting

Those investors who have remained active in 2022 have been happy to take profits in sectors that have outperformed, with energy being the most obvious example. Investors were less enthusiastic to rotate into sectors that have underperformed, or into “fallen angels” – stocks that were once market stars but are now 70-80 per cent off their share-price high.

Overall, nabtrade investors appear to have done a good job of preserving their capital in 2022. The flexibility of being able to go to cash when desired, and rotate in and out of sectors offering different outlooks, has given investors the opportunity to consolidate and even capitalise in a period of heightened volatility. I wish them – and you - the best for 2023!