Tech companies, electric vehicle makers and some meme stocks are part of the overall mix of stocks in Robinhood users’ portfolios, according to a new index from the brokerage’s app aimed at new investors.
These are stocks like Amazon AMZN,
Ford Motor Company F,
and Disney DIS,
It is also Nio NIO,
and AMC shares of AMC Entertainment Holdings,
APE preferred shares,
All indications are that Robinhood users are buying — and holding — companies they “know, understand and believe in for the long term,” the company said in a statement Friday morning, unveiling the Robinhood Investor Index.
“The Index captures how our clients invest based on Robinhood’s top 100 stocks,” the company said in a statement.
“Unlike most other indices, it is not weighted by dollars, but by belief. We measure a client’s conviction about each investment by looking at the percentage it makes up in their portfolio,” added Robinhood.
““Unlike most other indices, it is not weighted by dollars, but by belief. We measure a client’s belief in each investment by looking at the percentage it makes up in their portfolio.”“
“And to ensure that all clients are represented equally, we average the belief for each investment across all clients, whether they have $20 million or $20 million in their account,” it added.
“The index does not reflect the positions or performance of any individual investor, but rather is an overall picture of what our clients are investing on a relative basis,” Robinhood said, noting that it will update the index on a monthly basis. (Index does not include exchange-traded funds or cryptocurrencies.)
As institutional and retail investors grapple with volatile stock markets and assess the possibility of a recession, Robinhood hopes there can be value in letting users see where others are putting their money.
For all of 2021, the 100 most widely held stocks for Robinhood users outperformed the total performance of the Nasdaq Composite, and the two are now essentially equal, according to Robinhood data.
The Nasdaq COMP,
is down nearly 23% year-to-date. The Dow Jones Industrial Average DJIA,
is down almost 12% and the S&P 500 SPX,
decreases by 15% in this period.
“As investors grapple with volatile stock markets and assess the possibility of a recession, Robinhood hopes there can be value in letting users see where others are putting their money.“
“Validation is very important to a segment of our investors and so they will find it very valuable,” said Steve Quirk, head of brokerage at Robinhood.
In other words: Validation is essentially the knowledge that a certain group of people follow the same approach. for some, it helps them feel like they’re not alone.
Of course, there can be pitfalls in completely following what others are doing, but Quirk noted that the index is just one data point to inform investor decisions.
Other gauges paint a gloomy view of equity markets. More than half of people polled that stock prices will fall in the next six months, according to the latest sentiment survey from the American Association of Individual Investors.
But this could be a “buy” signal, because the agency sees sentiment research as “a contrarian indicator” as, for example, an opportunity for value.
Overall, the sectors most represented in the index include consumer durables, technology and consumer services, Robinhood said.
In early 2021, shares in meme stocks like GameStop soared in value, boosted by social media support from places like Reddit’s WallStreetBets.
But Robinhood came under fire when it temporarily halted buying orders for GameStop and other companies during the trading frenzy. It was a necessary step because of collateral requirements, CEO and co-founder Vlad Tenev said later, also noting that the vast majority of Robinhood users are buy and hold investors rather than traders looking at short-term plays.
Now Robinhood has a new challenge: difficult stock market conditions are hammering users’ portfolios and presenting headwinds for the company itself. Last month, Tenev announced plans to cut staff by 23% as weakening economic conditions squeeze trading activity and reduce the value of its holdings.
Assets under custody fell 31% from the first quarter to $64.2 billion in the second quarter, Robinhood said in its second-quarter earnings results.
Shares are down nearly 40% year-to-date.
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