Investors shun single stock picking amid increased market turmoil

It used to be fun buying big, blue chip Australian companies. Now it’s fraught with danger for many investors amid volatile financial markets, and has sparked a new trend.

Investors are buying entire sharemarkets rather than individual stocks as volatility takes a toll on household name companies.

A new report by CommSec has highlighted a big jump in self-managed super fund investors using exchange traded funds (ETFs) and listed investment companies to diversify and reduce their risk.

It’s easy to see the dangers of picking single stocks. In the past four years shares in Telstra and AMP have more than halved in value, NAB has dropped 32 per cent and Westpac is down 29 per cent.

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CommSec’s new SMSF Trading Trends Report shows the proportion of its SMSF clients with at least one ETF has climbed 13 per cent in just six months.

Its head of SMSF customers, Marcus Evans, said recent market turmoil had seen people using

Buying direct shares on the ASX is not as popular an investment strategy as it once was.

ETFs to take positions in markets while “removing the stock-specific risk of trying to pick winners”.

“In some cases we have seen 30-40 per cent movements (in share prices) so that makes people a little worried,” he said.

“It’s much easier to get good diversification through the exchange.”

Morgan Stanley’s head of wealth management research, Nathan Lim, said volatility had made single stock picking difficult. Companies operating in the same sector could have vastly different share price performances, he said.

The world’s investors are becoming less risky as they age. “The market is people, many people are Baby Boomers and a large portion of them are moving into retirement so the volatility they can stomach is very different,” Mr Lim said.

“It’s a lot easier to buy stuff other than direct shares — now we have some reasonable choices.”

ETFs can spread investors’ money across different countries, markets, currencies, commodities and other assets. Listed investment companies also invest in a basket of different shares.

@keanemoney