Sharemarket investing is back with a bang

A large number of the new account holders in CommSec came from Pocket, the new low-cost service that offers investors a very limited choice of just seven ETFs. Picture: Toby Zerna

A sharp slide in the number of Australians active in the sharemarket has been reversed thanks to a legion of new investors rushing in for bargains during the depths of the crisis last March.

These new investors are younger, more likely to be using an app as opposed to full service brokers and they favour exchange-traded funds over individual shares.

Commonwealth Bank’s results on Wednesday carried the latest numbers for CommSec, the online broker.

In the most recent half year, CommSec managed a stunning 100 per cent rise in trading volumes compared to a year earlier.

CommSec also pulled in 230,000 new accounts in the period, of which the majority were trading through an app — the number is extraordinary when put against an estimated total shareholder population in Australia of perhaps 6 million.

The CommSec spike in activity is probably the best evidence to date that younger tech-savvy investors are rejuvenating the wider sharemarket.

It is also clear that the new wave of investors is heavily skewed towards ETFs, which offer set baskets of shares in contrast to individual shares that traditionally offered a stepping stone into the market.

A large number of the new ­account holders in CommSec came from Pocket, the new low-cost service that offers investors a limited choice of just seven ETFs.

The service, which can be accessed for as little as $50, has collected 170.000 customers since its launch in mid-2019.

New research put together by the UNSW Business School for the Australasian Investor Relations Association (AIRA) shows that individual share ownership (excluding ETFs) bounced by 7 per cent last year after registering a decline of 12.5 per cent between 2017 and 2019.

However, the rebound in individual shares is being eclipsed by the move towards ETFs and other share-based products.

The AIRA says the big ETF managers are now major players in the local market, with BlackRock and Vanguard combined controlling more than 10 per cent of the ASX. (This percentage will lift once Vanguard launches a retail superannuation product expected later this year.)

Ian Matheson, the CEO of the AIRA, says: “We have concerns when investors do not directly own their shares they can miss out on the full benefits of individual shareholding such as share purchase plans.”

A new ASX survey also provides strong evidence the rush into shares in 2020 was led by younger investors with participation among 18 to 24-year-olds almost twice as high as the wider investing population.

Widespread concerns that new investors might be in for a shock if the market takes a sharp turn downwards are also echoed at the ASX.

The report suggests “it raises the possibility that at least some new recent market entrants have been engaged in short-term speculation rather than long-term wealth creation, potentially putting them at risk of losses if the recent volatility continues”.

Reassuringly, the ASX survey shows that the vast bulk of action by individuals in the recent crash was in buying, with very few selling out at the bottom.

In fact, it is clear in hindsight that it was professional investors who missed the early phase of the remarkable bounce of about 50 per cent enjoyed by the local market since March last year.