Return of retail investors offers hope for broader group of equities

Remember the meme-stock mania of nine months ago? Get ready for a broader, albeit less intense, version in the final months of 2021.

Vanda Research analysts, who track retail investment flows in the U.S., say individual investors are likely to step up purchases of a more-diverse group of shares. One reason is retail portfolios recently overcame a 50-percent underperformance gap relative to the S&P 500 thanks to rallies in favourites like Nvidia Corp., Apple Inc. and more speculative plays, according to a report from Vanda’s Ben Onatibia and Giacomo Pierantoni.

“Retail portfolios have recovered some ground against the S&P” after losses when “hypergrowth stocks and large cap tech de-rated,” the analysts wrote in a note to clients. “If history repeats itself, retail participation will improve going into Q4.”

While net buying from retail investors dried up in August, the analysts said there’s been “a lot of movement below the surface,” including into cryptocurrencies, semiconductor stocks and Chinese ADRS. Retail buying of chipmakers remains strong, meme stock purchases are rising, and flows into Chinese ADRS are slowing down, they said.

Investment flows into cryptocurrencies were less definitive, according to Vanda. “While prices of most coins have been rangebound for the last two weeks, retail activity in proxy stocks like Bit Digital or Riot Blockchain has completely died down,” the note said.

The analysts added they closed their bullish recommendation on cryptocurrencies.

While there’s been a recent wave of meme stock rallies for the likes of Support.com

Inc. and Vinco Ventures Inc., the Vanda analysts don’t expect a repeat of a boom seen at the end of 2020 and in the first quarter. “We think it is unlikely,” they wrote, barring a big catalyst, such as passage of a proposed Us$4.5-trillion U.S. budget.

Two retail-favoured semiconductor stocks, Nvidia and Advanced Micro Devices Inc., have each soared 38 per cent over the past three months, while Chinese-based companies that trade on the Nasdaq Golden Dragon China Index have shed more than one-fifth of their value. That wide spread in performance is matched by a Bloomberg-tracked basket of meme stocks which is down 5.5 per cent over the same period despite rallies for stocks like AMC Entertainment Holdings Inc. and Express Inc.