Private investor portfolios are down 44% year-to-date

Retail investors have suffered heavy losses this year, and many are avoiding individual stocks in favor of funds that track the biggest tech companies on the Nasdaq in hopes of recouping losses.

US retail portfolios fell 44% between early January and October 18, according to data compiled by JPMorgan Chase & Co. This reflects the severe pressure put on high-value stocks by rising interest rates and a deteriorating economic outlook.

“Retail investors have been conditioned to invest in growth categories,” said Jose Torres, senior economist at brokerage IBKR. .”

The Federal Reserve (Fed) has aggressively tightened monetary policy this year to keep inflation under control, raising interest rates by 0.75% at each of its last three meetings, to its target range of 3% to 3.25%. pulling up.

Rising borrowing costs reduce the attractiveness of more speculative companies whose cash flows are often projected into the future. Interest rate hikes by the Federal Reserve and its global peers have also added to concerns about a prolonged economic slowdown.

Wall Street’s S&P 500 has fallen more than 20% so far in 2022, while the tech-heavy Nasdaq Composite has fallen almost 33% over the same timeframe.

Interactive Investor, which runs one of the UK’s largest platforms for independent investors, said its clients have suffered an average 12% loss since the beginning of the year.

Burnt out, many retail investors sold their stocks to protect themselves from further pain. Investors posted the longest weekly sell-off in the past week since the bank began measuring the market in 2016, according to JP Morgan.

Selling volumes have yet to reach levels seen during the height of the coronavirus pandemic in March 2020, and analysts say investors fear missing out on market gains. suggesting.

“People remember March 2020 and the backlash,” said Peng Cheng, global strategist for quants derivatives at JPMorgan.

But he said he buys products that track stock indices, such as exchange-traded funds (ETFs).

Last week, investors bought more than $330 million in the Nasdaq 100 ETF, which tracks companies like Apple, Microsoft and Tesla, surpassing the 12-month average.

“On the one hand they are selling stocks, but on the other hand they are getting exposure to the Nasdaq,” Chen said.

In the UK, six of Interactive Investor’s top 10 most bought funds in September were Vanguard passive options. It was his first time in five years that the company tracked data, and he was the only active manager ranked in the top 10.

Investors have moved nearly $140 billion into money market mutual funds since the beginning of the year, according to Investment Company Institute data, with low-yielding accounts broadly in line with the Federal Reserve’s interest rate hikes. can provide a return.

“If you’re getting 4% yields on some of these commodities, it’s a no-brainer for retailers who can’t make 4% on the S&P,” said Viraj Patel, global strategist at Banda Research. It’s an easy way to get profit at a certain time.”

“Retailers have learned from their big losses so far,” Torres said. “They’re depositing money at high prices…that’s what the Fed wants.”