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Can share ownership be cool again?

by Matthew Smith | 24 May 2017

Have individuals gone off the idea of owning and trading shares in the public markets?

Well, not quite.

However, it does seem like the enthusiasm for share trading and share ownership has come off the boil since it peaked between 2000 and 2005, according to the latest retail investor data from the ASX.

Could the strength of the Australian property market in recent years be overshadowing our once borderline obsession with buying shares outside of the ones we already have via our superannuation funds?

Indeed, it could be.

For anecdotal evidence of the property over shares obsession, look no further than the weighty lift outs and the miles of column inches devoted to property in newspapers, which have significantly shrunk their coverage of retail investor issues relating to share ownership.

According to the data, the number of Australians who say they own on-exchange investments outside of their superannuation has remained below 40 per cent for the last five years.

This number was above 50 per cent between 1999 and 2004/2005 before it started falling, according to the ASX.

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There was a very small uptick in this number (1 per cent) from the previous study in 2014.

However, this slight uptick could likely be attributed (and then some, probably) to an increasing interest among investors in exchange traded products and out of unlisted managed funds, a trend InFinance has been tracking for a while.

The ASX data indicates that the number of ETFs on issue in Australia has increased by 61 per cent to 203 since the last study.

The boom in interest in share ownership in the 1990s can be put down to large initial public offerings starting with the Commonwealth Bank in 1991, Qantas in 1993, and Telstra in 1997, the ASX notes in its report.

Meanwhile, the Global Financial Crisis (GFC) in 2007-08 took the shine off share ownership globally, particularly among investors who were nearing retirement at the time.

Since the GFC, record low interest rates have led to increased property investment and high property prices in capital cities, in many cases dwarfing returns of the broader share market indices.

So, are Australians’ interest levels in the share market destined to languish at these levels – lukewarm at best compared to the fever-pitched run up of share ownership of the late 1990s?

Or will individual share ownership ever become cool again?

Look to Millennials

Pundits at the ASX’s panel discussion in Sydney in the last week think the next generation of asset owners – yes, you guessed it, Millenials – are most likely to fly the flag of individual share ownership in the future.

This position is supported by the ASX’s latest investor study findings, which ASX CEO Dominic Stevens presented to institutional investors at Macquarie’s investor conference in May.

Young Australians are investing more in direct shares, the study produced in partnership with Deloitte Access Economics, finds.

Between 2012 and 2017 the proportion of investors aged between 18 and 24 years old that hold on-exchange investments has doubled to just over 20 per cent, and there has been a 15 percentage point increase in the proportion of 25-34 year olds investing in on-exchange investments over the same period, the ASX data highlights.

This demographic shift in investing has flattened the age distribution of investors, meaning the proportion of each age range investing directly in the share market is evening out, the data reveals.

In lieu of a house

“It's true, people are putting money in shares because they’re not thinking about a house right now. Part of the reason they’re investing in shares is they can be ready to buy a property in 5 years’ time. It is playing a role,” comments John O'Mahony a partner with Deloitte Access Economics.

Not only, it seems, are shares resonating with new (younger) investors whose level of discretionary savings sees them locked out of the property market for the time being. The characteristics of share ownership suit the so-called Millennial cohort anyway, reckons Rebecca Pritchard, founder of Gladiator Wealth Enhancers, a Millennial-focused financial coaching business.

“Our client base wants ease of access, transparency of fees, and if it’s in their hand, they’re far more inclined to do it,” Pritchard says.

“Often Millennials are people who might be taking sabbaticals, their careers might be up in the air. In that regard, property makes very little sense, as least as a main residence, so shares do fit into that equation a lot easier,” Pritchard explains.

“Shares give them [the younger cohort] flexibility, they’re easy to access and you can get started easier,” she says.

Pritchard notes that “using shares as a pathway to save a deposit for a house” is common strategy among her Millennial clients.

Is the investment industry prepared for the interest Millennials might have in the share market and share trading?

Easy money?

This younger cohort brings different goals and they are surprisingly risk averse, even more risk averse than people towards the end of their careers, the ASX report highlights.

They are also less inclined to use a financial advisor, and if they do they would rather maintain control and seek assisted-advice solutions, the report finds and participants highlight during the ASX panel discussion.

But does this mean that the younger investors, who are embracing the share market faster than any other group of investors, know what they are doing?

It’s unlikely they do, comments Arnie Selvarajah, CEO of discount brokerage platform, Bell Direct.

“My observation is that they prioritise convenience and simplicity over the investment outcome,” Selvarajah says.

“For me, it’s a concern in a way because what’s happening here and overseas is we are delivering easier investing but we’re not necessarily delivering better investment outcomes,” Selvarajah says.

From robo advice to the rise of exchange traded funds, Selvarajah says his view is that investing is becoming too simplistic.

“As long as it’s easy to action, simple to join, easy to understand, then they’re interested… I don’t think they are really thinking about diversification at this point,” Selvarajah remarks.

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