What investors are buying in the COVID-19 crisis

The COVID-19 pandemic may have proved volatile for investment markets, but it also appears to have opened the door for new and existing investors seeking opportunities. What makes recent months particularly interesting is that investor behaviour in the latest market volatility has been unlike past panic activity.

Kanish Chugh, co-Head of Sales at ETF Securities, recently spoke to Gemma Dale, Director SMSF and Investor Behaviour at Nabtrade and Anastasia Anagnostakos, Business Development Manager in the Investment Products Division of the ASX, about the changing investment space and investor behaviour.

Increasing investor activity

ASX reports show a substantial increase in retail trading over the course of the COVID-19 pandemic, with average retail trading increasing to $3.3bn at the end of April 2020 compared to $1.6bn pre-COVID and many dormant accounts recommencing trading activity[1].

“Many investors have learnt from our most recent crisis, the GFC, such times often present a good price point to buy into the market and have been doing so with long-term and short-term ideas in mind,” Ms Anagnostakos says.

Nabtrade, one of the largest trading platforms in Australia, experienced much of this increased interest and activity.

“We’ve seen just an unbelievable uplift in people who are suddenly really enthusiastic about buying shares…We saw a 500% uplift in new applicants in March. We saw another 300% increase in April – that’s off usual levels, not off March. And we saw that continue through May, but it’s starting to fall away,” says Ms Dale.

Ms Dale found that investors have been focused more on quality rather than speculative purchases in the past few months.

“They were buying largely blue-chip stuff that they were already very familiar with. We saw people buying stuff they wanted to own for a long time before but thought were too expensive,” she says.

She points to CSL as being popular with investors along with banks.

“Most of them saw that times are going to be tough for banks. When you give everyone a loan repayment holiday for six months and when you have high levels of unemployment, and so on, it’s going to be tough, but these are still high-quality businesses. They’re going to be around after all of this is ending,” Ms Dale says.

She also found aggressive buying behaviour around buy-now, pay-later companies such as Afterpay, Zip and Splitit and, perhaps more surprisingly, the travel sector, with Qantas and FlightCentre a particular focus. She suggests the activity on travel relates to expectations that Australia will still need a national carrier and people will want to travel again once borders open.

While Nabtrade had found a greater tendency towards buy and hold investments, Ms Anagnostakos notes the ASX has found an increase in shorter term trade activity, with the cash equities market one such area which has experienced trading spikes, along with commodity and geared funds. There was also a shift in what assets investors sought across the crisis.

“Initially, we saw a flight to safety through precious metal ETFs or broad-based market ETFs, whereas in April, investors, rightly or wrongly, are reading into the signs of a recovery, with Australian equity and property ETFs being the main beneficiaries, both being up by almost 12% on the month,” says Ms Anagnostakos.

Investing for the long term in international

International investments have also been popular with Nabtrade investors, with the US representing about 90% of those trades.

“It’s where you see the huge tech stocks, which is what they’re most enthusiastic about buying. So when you talk about FAANG and the broader universe that you guys cover, that is absolutely where investors love to go when they go off-shore, they have been looking for those for a really long time,” says Ms Dale.

Interested in FAANG companies? Find out more about ETFS FANG+ ETF (ASX code: FANG).

International trades for Nabtrade have typically been buy and hold investments, with investors wanting to avoid trades where they need to move quickly (and would therefore be required to monitor activity overnight to be ready to act).

Of the buy and hold activity, Ms Dale says, “a lot of it is of high conviction, very high-quality companies. The number one is Tesla. It’s very, very popular among our base. It’s been an absolutely wild ride. The 52 week low’s around the $200 mark and it rocketed back up to well over a $1000. So a lot of our investors were buying it on the lows and have done really well out of it.”

Tesla is included in the portfolio of ETFS FANG+ ETF (ASX code: FANG) and ETFS Battery Tech & Lithium ETF (ASX code: ACDC).

While generally activity has focused on long-term quality purchases, Nabtrade still have investors who are closely tracking markets and responding to it.

“The one that shocked all of us, that was fascinating, and you asked about sectors that we haven’t seen before, was oil stocks. So when the oil futures went negative, there was one night that the oil futures went negative, $30 negative as well… There was this massive panic selling. We had investors buying so enthusiastically that night, it was extraordinary. They were mostly buying ETFs based in the U.S. that gave them exposure, which was really interesting to see,” she says.

Unusual investor behaviour

Retail investors have traditionally been expected to panic in periods of market volatility, selling at the wrong time. Ms Dale has found current behaviour to be the opposite, with many investors taking the opportunity to buy companies at cheaper prices and focusing on quality.

She says, “we saw existing investors putting cash to work that they’d had sitting there for quite some time and we saw a lot of new investors coming to the platform and to the market in general… We saw people buying stuff they wanted to own for a long time before but thought they were too expensive”.

ETFs were also popular as a quick entry point for many investors.

“What we saw in these really, really volatile days, was a lot of our investors wanted to get a piece of the action. They move extremely quickly. If they didn’t feel they had time to do the research, or they didn’t want to take a position on what was going to move, they just wanted to be in it… We saw a lot of active investing using ETFs to get access to particular positions that they might otherwise have found quite difficult, or just from a timing perspective,” Ms Dale says.

The numbers for ETF trades on the whole reflect this interest.

Ms Anagnostakos says, “in terms of the ETF market, a usual day, pre-crisis, accounted for about 4% of total trades on the S&P/ASX 200, but during this time it has ballooned to about 10% of total trades.”

Ms Anagnostakos also views the popularity of ETFs as linked to their ability to offer efficient and instant diversification.

“If you want to diversify and lower your overall portfolio risk, ETFs are a classic way to do this as they are a pure beta play. If you believe in the long-term direction of certain asset classes, strategies, sectors or geographies, and they represent good value to you in this crisis, then investors can seize the opportunity to invest in and potentially lower their overall portfolio volatility, while still achieving good long-term returns,” she says.

Tips for new investors

The COVID-19 pandemic has been an unusual event, and many investors capitalised off the opportunity to buy stocks at lower prices. While experienced investors may be accustomed and hardened to experiencing volatility in their portfolios, newer investors may still be yet to understand what this will mean financially and mentally for them.

On this note, Ms Dale cautions newer investors to manage their expectations on market activity accordingly.

“The windows in which this happened are very, very rare. You get this kind of event once every 10 years and the next time the market falls, you’ll be on the wrong side of it because you now hold shares. You didn’t hold them before. So, you’ve never felt that way, watching them drop away. Now you have to learn how to hold your nerve when they do fall away because it happens sometimes, and events occur. If we get a second wave, whatever it might be. So it’s brilliant that investors have come to market and done so well so quickly, right? It’s fantastic. Just don’t convince yourself that this is a normal experience. There are only a few windows in your lifetime of investing that you will be able to do this well this quickly, particularly if you’re new to market,” she says.