The Rise of Retail Investors: An Expert Analysis

Euronext Corporate Services’ Head of Advisory & Investor Relations Solutions, Nicolas Meunier, was joined by Karen Coke and Simon Bennison from communications firm Emperor to discuss the rise and impact of retail investors. They examined the reasons behind the increased number of individual shareholders, how they are challenging companies to think differently and how issuers should communicate with their newfound retail investor base.  

What caused the rise in retail investment? 

Not only have numbers of retail investors grown in the European markets but so has their trading activity. In France alone, between Q3 2019 and Q3 2021, the amount of individuals on the markets grew by more than double, rising by 1.5 million to reach a total of 2.5 million. Belgium also saw a 50% increase in the number of active retail investors over a two-year period from Q1 2019 to Q3 2021.  

Nicolas Meunier explored the reasons behind this trend. He discussed how previously low interest rates had seen many individuals turn to the markets for a better return on their cash, and that many people think they can improve on low yields on fixed income securities.  

 Activism is another potential driver, with an example being the Gamestop saga where individuals worked together to try and impact the returns of hedge funds that were short selling a company’s stock. The impact of investments on ESG matters is also an important factor.  

All of this, combined with the opportunities provided by fintech and digital investment developments and the large number of flagship IPOs, has attracted retail investors to the market. The pandemic also provided an opportunity to research trades that would maximise return on investment.  

Profile of retail investors 

The statistics show that the new breed of retail investors is predominantly young, with the average age of new customers at online brokers standing at 36. This compares with an average age of more than 50 for the rest of the investment population and feeds into the view that they are more likely to be informed about trading by social media rather than traditional investment banks.  

Retail investors are less risk averse than their parents, they want to find out about companies other than just the blue chip firms and from a range of sectors, with societal impact in mind when making investment decisions. These new investors have been found to be particularly interested in a company’s mission and purpose.   

Not only did retail investors become increasingly active in March 2020 when COVID-19 hit, but they remained active, showing their long-term approach to investment. At the same time, the average trade size has dropped. Nicolas Meunier believes that this shows that retail investors are diversifying the risk of their investments.  

Benefits and risks for issuers 

There are pros and cons of this increase in retail investment for issuers.  

Benefits include:   

• More long-term investors 
• Added liquidity 
• An increase in the ambassador effect for your brand 

 Risks include: 

• A potential increase in vocal detractors to counter the ambassadors 
• Difficulties in creating a direct dialogue and engagement 
• High-risk behaviour, fuelled by social media etc. 
  

How to communicate with retail investors 

Emperor's Senior Consultant Karen Coke and Head of Digital Strategy Simon Bennison discussed the ways in which companies can appeal to retail investors and engage them.  

Karen Coke mentioned the way that bank HSBC uses its social media platforms to campaign and raise awareness of social interest topics, whilst Simon Bennison referred to energy company SSE’s campaign to enlist customers to add their signature to the turbines at an offshore wind farm. This created publicity and elevated the company’s ESG credentials.  

Another example of issuers embracing an approach that engages retail investors was AstraZeneca. The pharmaceutical firm uses its website and social channels to showcase its people and their role in the company’s success. Showing the human side of the business is key for issuers who want to truly speak to this new breed of investors.  

Next steps for issuers 

For issuers looking to engage retail investors, here are five steps to take: 

• Define your purpose to help them understand what makes you different 
• Connect them to your whole company story, beyond just the financial results 
• Be consistent and authentic in your content to make your message accessible 
• Empower employees and customers to advocate for your brand 
• Position your messaging to attract the widest possible audience. People want to see themselves being represented in your communications.