Redrick Terry:
It is once you get time for 4 Your Money. We’re joined by Nate Kreinbrink, Financial Advisor at NelsonCorp Wealth Management. Nate, welcome back.
Nate Kreinbrink:
Thanks again for having me again this morning, Redrick.
Redrick Terry:
Absolutely. So, we’ve heard a lot of stories over the past year or so, talking about retail traders. If you could help us here, define what a retail trader is, what they mean for us and how they fit into the financial market ecosystem.
Nate Kreinbrink:
Absolutely. Well, generally when we’re talking about retail traders, we’re referring to individual investors, as opposed to institutional investors, foreign investors, or even governments. So, when we talk institutional investors, this can simply mean sophisticated professional investors and businesses like banks, but it also can refer to mutual funds and exchange-traded funds or ETFs. Now, although these products tend to usually be owned by individual investors, the management and decision-making are still being made by larger institutions. And I think we have a chart that gives us a little breakdown of US stock ownership, and the chart simply looks at this breakdown of ownership of all the US stocks.
Nate Kreinbrink:
Now, we can see that the biggest single owner of US stocks is still individual investors at a little over 38%, and that’s indicated by the red portion of that pie chart. Now, however, if we add up all the segments that can still be considered to be institutional investors, such as mutual funds, pension, or retirement accounts, and ETFs, that total comes in just under 38%. Well, this is interesting at this point in time, because up until about the last year or two institutional ownership exceeded individual stock ownership here in the US. Now, if we go back over the past 50 years, ownership in these US stocks was dominated by these individual investors. However, we’ve been seeing a persistent train of increasing institutional ownership, which largely overtook this individual ownership in the early 2000s here.
Redrick Terry:
And Nate, you guys often talked about money flows here on the show. How does that concept tie in with this?
Nate Kreinbrink:
So, we look at money flows as a source of demand for stocks. So, with this, we tend to look at these non-institutional players to see the increasing ownership as a potential source of demand. So, the two biggest players here would be individual investors and foreign investors. Now, both of these segments have been increasing their ownership of US stocks in recent years, which usually tends to bode well in terms of supporting these equity prices here currently, that we’re going through.
Redrick Terry:
So, this seems like a big picture type of concept, right?
Nate Kreinbrink:
Absolutely.
Redrick Terry:
It’s just something that people should be thinking about when it comes to their investments.
Nate Kreinbrink:
Well, it certainly can have an impact. And I think a thing to consider is just the different incentives and behaviors of different market participating segments. For example, much of the institutional owner space consists of mutual funds and ETS. Now, while mutual funds are currently a larger piece, the majority of net flows over the past 10 years has been going into these exchange traded funds or ETFs. Now, this trend has really been about the increase in passive investing, which simply seeks to own the broader market, rather than trying to pick specific winners and losers.
Nate Kreinbrink:
However, this also means that there are very large segments of the market that are indifferent to pricing. So, when money comes in, they aren’t necessarily looking at where the best place to allocate capital is or when the best time might be, they simply buy the broad market. So, more and more, as this continues to go, investors should definitely be paying at least a little attention to the market structure and how it is going to be moving forward.
Redrick Terry:
We appreciate your insight as always. Nate Kreinbrink, thanks for being with us today.
Nate Kreinbrink:
Absolutely. Thanks again.
Redrick Terry:
No problem. And if you missed any part of our discussion, we’ll make it available to you at ourquadcities.com.