Where investors went in 2022

The traditional wisdom is that retail investors are a skittish lot. One whiff of a market downturn and they’re outta there. Of course, we’ve seen in more recent years that these investors deserve much more credit than that.

During the COVID-19 pandemic, Australian investors flocked into what they hoped was the buying opportunity of a generation. Rather than piling in on speculative positions and day trades, the evidence showed they were measured. Newer investors bought broad-based exposures through ETFs, more experienced investors took the opportunity to buy into those positions they’d been eyeing off for some time, hopefully at a discount.

“Contrary to popular belief, retail investors are quick and they understand the principles of investing. They hold their nerve and are better educated than in the past. If they believe a stock is high quality, volatility doesn’t matter,” says Gemma Dale, Director of SMSF and Investor Behaviour at nabtrade.

According to Dale, trading volumes on the platform increased five times during the COVID-19 pandemic and nabtrade had a 4:1 ratio in buy:sell trades during March-June 2020.

But times have changed… So have investors changed their behaviours too?

The downshift

There’s no question that flows across shares and investment products have dropped off this year compared to last.

For example, Rory Cunningham, Senior Manager of Investment Products for the ASX, points to the substantially lower numbers in ETFs.

“Assets under management for ETFs is down around 4% compared to the end of 2021, with year-to-date flows at the end of October about half of the flows across 2021,” he says.

Despite this, the ASX has seen a record 32 new launches year-to-date with a few more still to come in 2022.

Dale says there have been far lower volumes on nabtrade and a shift towards trimming positions to take off risk or putting money into cash for opportunities down the track. That said, she has found that buying behaviour towards broad-based ETFs has been consistent across the year.

There are a few factors behind this.

• Investors are out of lockdowns and have less time to watch the market.
• Markets are more volatile this year and with 6,700 basis points in rate hikes globally, investors are pacing themselves.
• Investors are not necessarily seeing the same big opportunities of the past few years.

Dale has also seen a change in which investors are in the market at the moment.

“Younger, less experienced investors have drifted whereas more experienced investors have seen this all before. They are also more likely to hold quality stocks like Woodside Energy Group (ASX: WDS) or Santos (ASX: STO),” she says.

Buying and selling in 2022

Growth names, particularly in technology, were popular over the COVID-19 pandemic. Investors particularly loved the idea of buying into the names they were using as they worked from home ranging from home office furniture to computer and phone manufacturers like Apple (NASDAQ: AAPL) or Microsoft (NYSE: MSFT).

With tech names on the nose this year, what are investors buying instead?

Dale says the focus for nabtrade positions has been on materials and energy, with Fortescue Metals Group (ASX: FMG) the most traded company this year. It's also been the first time she's seen the big banks drop out of the top 10 most traded companies.

Lithium has also been a surprise winner.

“Mature investors were happy to have a dabble and prices have gone crazy this year. We’re starting to see investors trim back their positions to take risk off the table and reset their portfolios,” she says.

She notes there’s been no particularly crazy buying or selling behaviour, rather measured trimming or adding to positions. Buying has been mixed.

In keeping with the greater focus on materials and energy, Cunningham says commodities ETFs have had the third most inflows this year. Though he points out these have been primarily to gold products, possibly as an inflationary hedge.

The biggest downturns the ASX has seen have been in global equities and cash.

“Global equities inflows stood at $4.8bn YTD at the end of October, whereas inflows were around $11bn for 2021. Cash had inflows of $338million across 2021, but this year are in the red, standing at $580million in outflows,” Cunningham says.

Money might be flooding from cash ETFs based on ASX reports, but nabtrade’s cash book is at record highs. This isn’t as contradictory as it sounds.

“People are holding a lot of cash at the moment which is a good gauge of sentiment. The intent is to use it when they see opportunities but they clearly aren’t seeing these come up at the moment” she says.

Cunningham points out that rising interest rates might make the average term deposit a more appealing prospect than sitting in a managed fund product. He also hasn’t seen the cash outflows turn up as a boost to other ETF asset classes in keeping with Dale’s findings.

On the other hand, he has seen inflows to Australian equities hold up this year compared to last, suggesting investor hometown bias is alive and well.

What comes next

Cunningham anticipates a few key trends in the coming year.

“Fixed income is only 11% of the total market capitalisation of the Australian ETF market. There’s a big opportunity for this to grow in the next year as it aligns with the needs of an aging population,” he says.

There’s also been a big shift in ESG-related products coming to market this year and he expects this trend to persist into 2023.

Dale expects investor behaviour to remain largely practical and sensible in the coming year.

“We’re in for a period of conservative growth. This doesn’t excite investors but it’s a healthy moderation. Now is the time for a ‘stay calm’ attitude which should play out next year,” she says.

Of course, anything can happen. We’ve learnt that the hard way. But all things being equal, perhaps the year ahead will be a fairly bland one for investments. And maybe that’s good news.

Have your investments in 2022 followed the trends above? And where you are planning to put your money in 2023? Let us know in the comments section below. 

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