Retail investors’ behaviour throughout the covid-19 pandemic and lockdown has surprised many industry professionals.
Typically, retail clients tend to follow the market “bandwagon” and sell when it is going down, Furio Pietribiasi, managing director of Mediolanum International Funds, told International Adviser.
But at the height of the crisis, they stayed put.
“For the first time, we haven’t seen massive negative flows across the board,” Pietribiasi said. “Retail investors have been proven particularly resilient.”
There could be many explanations for this type of behaviour. Some think that they have followed their financial adviser’s recommendations to wait out the storm, other argued that they were too scared of what was happening with the markets to touch their investments.
Some, Pietribiasi added, believe that due to lockdown measures, especially for clients of the more traditional institutions, they were not able to go into their local branches and redeem their investments physically.
Contributing factors
But this may not be so true, he added, because those with digital access to their portfolios have followed a similar path. “Even where people could redeem money digitally, there hasn’t been massive outflows.”
How is it, then, that this crisis was different from the others, and that retail investors have followed such a different path than what people expected of them?
“The reason, in my view, is that the reaction of governments and central banks has been very fast and very strong, and I believe that the fact that the market immediately reacted has helped quite a lot, from an investor’s perspective, in regaining comfort and to hold on,” Pietribiasi said.
And advisers must be thanked for it too, he added.
“Financial advisory networks have been among the strongest, where advisers have done a fantastic job to help understand what the crisis was, to educate the client and flag up all the opportunities that this market disruption had.
“Particularly, we can look at the credit space, the equity space, where there were companies with solid balance sheets and very strong growth potential that, in the moment of a market shock, their price has suffered and have become a great opportunity.
“I think it’s a combination of all the facts together that has proven that retail investors, for once, have done the right thing, which means staying invested.”
The road ahead
Now that, arguably, the worst has passed, what is next for the retail space?
Pietribiasi believes that caution is paramount, although some professionals seem overly enthusiastic.
“Some people are showing an excess of confidence, considering that up until two-three months ago some stocks were down 30/40% and now they are at +30/40%, and some even better, they may think that the worst is gone and that there won’t be any problems in the future.
“In reality, I think that we need to stay vigilant and cautious, not because I’m expecting another crash, but because the measures from the monetary and fiscal policies are going to take time.
“And on a European level, the timing is very different from country to country,” he added.
As the year ends, the spotlight will be on financial advisers to help clients navigate the next few months, Pietribiasi believes, and to find and offer opportunities.
Fear factor
While some are being overconfident, others are concerned about a potential second wave of covid-19 infections and the effects it could have, considering how devastating it’s been the first time around.
He continued: “I think a second wave is not an issue itself for the market, I think that what would be an issue is another lockdown.
“Assuming that we have a second wave, the issues that we had in the first wave with the lockdown were due to the fact that we were caught off guard, nobody was expecting it.
“Now, if we have a second wave, we have a better understanding on how to treat it. Second, we have a better framework to map it and control it in terms of expansion and, third, the vaccine is going to come soon so, I don’t think that a new wave of covid will present a major issue for the markets, as long as we manage to control it and it doesn’t trigger a new lockdown.”
Lesson learnt?
Retail investors have now seen that staying out during the crisis’ peak paid off, but what else should they keep in mind following the pandemic?
“I was very happy to see that retail money was sticky, usually retail money always follows the bandwagon effect,” Pietribiasi added.
“The real lesson is, even if for different reasons – whether they decided to follow the advice, or investors were too scared to think about their investments, or simply couldn’t go to the bank to redeem – their money has recovered.
“I hope that this will help retail investors in the future to not sell when the market is going down but, hopefully, to take advantage and buy.”
