Finance

As stocks break records, retail traders take riskier, more leveraged bets


Retail investors have piled into riskier leveraged funds in recent weeks, Vanda Research said.AP Photo/Richard Drew

  • Investors have piled into riskier, leveraged stock market bets in recent weeks, Vanda Research said.

  • Inflows also increased as stocks hit new records.

  • Strategists say investors may be trying to use leverage to put their capital to work more efficiently.

The stock market has Soaring to record In the first three months of the year, retail traders were increasingly tempted to take advantage of the momentum and make riskier bets.

Data from Vanda Research shows that the use of leverage by individual investors has increased steadily in recent weeks.

As the chart below shows, as stocks hit all-time highs, retail investors reduced their purchases of broader market ETFs like SPY and QQQ, which track the S&P 500 and Nasdaq, while increasing their exposure to triple-leveraged funds. invest.

Retail net purchases chart, Vanda ResearchRetail net purchases chart, Vanda Research

Net retail purchases showed rising inflows into leveraged funds.Bandai Research

The trend comes amid strong first-quarter gains for major stock indexes, Dow Jones Industrial Averageup 4.91% year to date S&P 500 IndexNasdaq rose 10.1% and 10.59%.

Risky bets across markets, including cryptocurrencies and Meme stocks rise againthis time reversing the trend of higher interest rates that took the air out of those deals two years ago when the Fed began tightening monetary policy.

“If we then expand the leveraged ETF pool to some of the higher-volume funds, we’ll see retail inflows (adjusted for leverage) now easily clear the May-July 2023 AI push,” Vanda said. highs seen during the last rally,” strategists wrote this week.

The chart below depicts the growth of net retail purchases of leveraged ETFs in February and March 2024. The data is based on the 22 largest leveraged ETFs in the United States as of March 26.

Vanda Research Retail Net Buy Leveraged Equity ETFVanda Research Retail Net Buy Leveraged Equity ETF

Retail net buying of leveraged equity ETFsBandai Research

On the other hand, another potential driver is that the average retail portfolio is finally out of the red about two years later, following the brutal bear market of 2022. With the focus now on driving gains rather than covering losses, traders may feel more confident taking on higher risks, Wanda said.

Analysts went on to note that they expect retail investors to tend to bet against the trend, buying dips or selling rallies. They also said that retail investors are diversifying from top-rising stocks such as “Seven Heroes” to other stocks. Data shows that this group hopes to participate in the expansion of stock market gains as soon as possible.

Read the original article business insider



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