TD Ameritrade’s individual investor customers responded to market gains in January by buying more equities than they sold, but they still reduced their exposure to risk, the firm said Monday in its new Investor Movement Index.
The index, which made its debut in January, tracks investor sentiment by analyzing activity in a sample of the Omaha online brokerage’s 6 million funded accounts. The firm said the index is unique in that it tracks actual investment behavior, rather than reporting results from surveys asking investors what they intend to do.
“There is quite a bit of disparity in what people say they’re going to do, or perceive they’re going to do, and what they actually do,” said Steve Quirk, senior vice president of TD Ameritrade’s trader group.
Quirk said the index essentially measures confidence as it quantifies risk and profits in client portfolios using a proprietary formula.
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TD Ameritrade CEO Fred Tomczyk said the firm has been working for “a couple of years” on developing the index.
“It really was a bit of an innovation for us,” he said. The results can be viewed as a barometer of retail investor sentiment, Tomczyk said, “given that we have the largest retail investor base in the industry.”
The firm benefits when investors make frequent trades. Trading volume was down 9 percent year over year for the quarter ending in December but picked up in January, Tomczyk said recently.
Quirk said Monday that investors were prudent, as markets approached five-year highs in January, to use “beta weighting” to reduce the relative risk of their equities holdings compared with their overall portfolio risk.
“Using education and the tools and research now available, our clients appear to be very tuned in to the market,” Quirk said.
The index’s value fell in January, its second month of reporting, but still was considered moderately high as retail investors appear to be bullishly positioned in the markets, Quirk said. The index had risen in December, its first month of reporting, as investors bought and held securities with relatively high risk. For example, TD Ameritrade clients were net buyers of shares of Apple, which that month was relatively volatile, the firm said.
Quirk said the first phase of the index is intended as a tool for anyone to use. “We did it for our clients, but we also did it for the industry,” he said.
Client data is aggregated for privacy but is “democratic,” Quirk said, in that it includes all active accounts with a minimum of $2,000. The index includes any investment type including mutual funds, stocks, options, and bonds.
In the future, a more detailed breakdown of investor behavior will be available to the firm’s clients. They will be able to see behavior of demographically similar investors, or track trading activity in specific sectors.
“This is their data,” he said. “Let’s give it back to them so they can make more informed decisions.”
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