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Young money: Microcaps targeting millennial investors as market demographics shift

A new Millennial-focused investor conference has drawn mixed reactions from Australia’s financial gentry, despite data showing these young guns will play an increasingly important role in markets.
A new Millennial-focused investor conference has drawn mixed reactions from Australia’s financial gentry, despite data showing these young guns will play an increasingly important role in markets. And while debate over younger investors’ inclusion in microcap investing rages on, major financial institutions are already changing their strategies in response to the new demographics’ demands. Last Friday saw 33 ASX-listed businesses – many from outside the ASX/S&P 300 – pitch their business to young and would-be investors in five-minute slots as part of the MarketLit conference. The free event, organised by The Capital Network and sponsored by micro-investing app Raiz, promised to bring together market leaders for “Australia’s First Millennial and Gen Z Investment Conference”. Despite featuring speakers from major institutions (including the ASX itself, alongside CommSec and regulator ASIC) the event drew criticism from Morningstar. The research house used an editorial (posted in response to the event) to raise concerns about the risk profiles of smaller businesses. Meanwhile, former financial planner-cum-’finfluencer’ Glen James flagged similar concerns. Speaking to Australian Financial Review, Mr James cautioned against holding too many ‘penny stocks’ in a portfolio and likened many smaller companies to cryptocurrencies in terms of risk profile. ASX business development manager Anastasia Anagnostakos, meanwhile, stressed the importance of doing your own research before making an investment. Homebuyers would not buy property without first inspecting it, she noted, and investing in shares should be no different, and if an investor isn’t ready to undertake the required analysis before buying a company, they should consider alternatives. Although the conference went ahead without any major hitches or scandals, the contentious remarks around millennial investors and how they allocate their capital represent the latest development in the ongoing conversation about how demographics are changing share markets.

The youth incursion

At present, the average age of an investor in Australia is about 46 according to the ASX Australian Investor Study 2020. More than half of these existing investors are male. But in the years ahead, the ASX expects this to shift as more women and younger Australians try their hands at investing. According to the exchange’s research, the average age of Australians intending to start investing is 34 years, with more than a quarter of these would-be shareholders under the age of 25. While the portfolios of these younger investors bear many similarities with those of previous generations, there are some marked differences, too, as a survey by Motley Fool recently uncovered. And despite the headline-grabbing success of certain ‘meme stocks’ like GameStop and DogeCoin, Motley Fool’s data found younger investors aren’t simply jumping on bandwagons for the ‘lols’, to use the parlance of the generation. The survey found 67% of investors aged between 18 and 40 held shares, with growth and dividend stocks proving the two most popular types. Shares were far and above the most popular investment type, followed by mutual funds. Cryptocurrencies made an appearance in 40% of the cohort’s portfolios, eking out bonds, options and even ETFs to claim third spot.
Interestingly, the research found only 25% of young investors currently hold ESG stocks, referring to companies with a strong focus on sustainability and ethics in their environmental, social, and governance footprints.
Even so, ESG considerations are tipped to become a major factor in markets as more millennials begin to invest.

New ESG momentum

Figures collected over the past several years have consistently pointed to the fact younger investors place more weight on ESG factors than their older contemporaries. And the Responsible Investment Association Australasia’s (RIAA) From Values to Riches Report 2020 found investors are willing to weaponise their wealth for good. The report found three quarters of all Australians would consider divesting from businesses or switch banks or super funds if they found their current investment or provider was engaged in business counter to their own values. This was found to be particularly true for younger investors, especially when it comes to climate change. Recent climatic events have prompted a greater number of millennials to consider how their money is being used – and by whom – and an astounding 80% now believe their investment choices can influence climate change.

Funds, investors, executives forced to change

These trends are being noticed by major investment houses, too. In 2018, UBS’ then head of investments Suni Harford warned a group of Australian financial advisers not to preclude ESG investments even if they didn’t personally support the underlying cause.
“It does not matter if you believe in social responsibility measures, what matters is whether your market does – and they do,” Ms Harford, now chair of UBS’ executive and risk committees, said.
Business executives with unpopular issues on social matters are also likely to become a risk for investors, she added, noting customers and investors will vote with their wallets if an executive makes public remarks that don’t align with the values of their stakeholders. In a more extreme example, the $55 billion super fund titan REST committed to reduce the carbon footprint of its investment portfolio to net-zero by 2050 after being sued by a 25 year old member. The fund was accused by the activist millennial of breaching its duties under the Superannuation Industry Act by failing to adequately manage the investment risks associated with carbon emissions. These included the risks fossil-fuel exposed businesses could see their value drop rapidly, or the risk infrastructure assets could be damaged by extreme weather events brought on by climate change. As the case was settled out of court, REST’s commitment does not set a legal precedent, but law experts have noted the outcome will influence how the legal and funds management professions view these risks moving forward. This story has been updated to better reflect comments made by ASX business development manager Anastasia Anagnostakos. Sources:

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