Retail investors turn to ETFs as recession fears knock down meme stocks

Retail investors are doubling down on Exchange Traded Funds (ETFs) as rising interest rates and volatile markets curb their appetite for risky assets such as meme stocks, SPACs and cryptocurrencies.

Global financial markets have taken a beating as central banks try to combat runaway inflation with aggressive rate hikes, thereby ending years of loose monetary policy that had underpinned a record rise in the prices of such assets, reports Reuters.

Vanda Research highlighted a largely risk-off sentiment among investors in its latest report by pointing to a 4.4 per cent year-over-year drop in single-stock purchases by retail traders to $173 billion even as inflows into ETFs rose nearly 14 per cent to $116 billion. On average, retail investors' portfolios are down about 39 per cent in 2022 after recording gains of 18 per cent in 2021, JPMorgan analysts Peng Cheng and Emma Wu said.

"The ethos is really starting to spread in the retail investor community that if you want to build wealth through your investments, take a long-term view," Maximilian Rofagha, chief executive officer of Finimize, an abdrn-owned insights firm, told the Reuters Global Markets Forum (GMF).

Finimize's recent survey of 2,300 retail punters showed that despite their worries of a recession, only 1 per cent wanted to exit their investments, with about 65 per cent planning to continue investing and 29 per cent aiming to invest more despite the cost-of-living crisis.