Gen Z represent the next generation of retail investors, but how does they like to spend their money? Data for Q4 2021 suggests that younger investors are starting to move away from the meme stock frenzies of last year and more towards emerging tech and sustainability.
As meme stocks became profoundly popular in the first half of 2021, data suggested that Gen Z investors largely carried an appetite for risk and were motivated by the notion of making money fast – as opposed to more sustainable investing methods.
Stocks like GameStop (GME) and AMC Entertainment (AMC) experienced significant short squeezes that drew in huge volumes of interest and positive sentiment from retail investors. However, available data from Q4 2021 suggests that Gen Z investors are displaying more maturity in their market actions today.
Apex Fintech Solutions data shows that the appetite of younger investors towards meme stocks like AMC is decreasing, while payments-based tech stocks like PayPal (PYPL) and Block (SQ) have become more popular. Similarly to Q3 2021, growth stock favorites like Tesla (TSLA), Apple (AAPL), Amazon (AMZN) and Microsoft (MSFT) ranked highly within the Gen Z top 10 most frequently held assets.
The data also suggests that Gen Z investors are more curious about the metaverse, and how companies are looking to utilize the technology to deliver new frontiers in digital collaboration, communication and gaming.
We also saw sustainability-focused stocks like electric vehicle startup Rivian (RIVN) climbing the rankings quickly. This indicates that younger investors may be prioritizing more environmentally conscious and climate-forward stocks as a priority.
“We have only begun to scratch the surface when it comes to the digital and technological evolution of our world – and Gen Z investors are at the forefront of this change,” explained Bill Capuzzi, CEO of Apex.
The Changing Attitudes of Retail Investors
As online brokerages opted to switch to ‘zero commission’ payment-for-order-flow operating models, the volume of retail investors taking their first steps in buying and selling stocks began to grow at a rapid pace. This, combined with the arrival of the Covid-19 pandemic and the time and money saved through governmentally imposed lockdown measures created a perfect storm of new arrivals to the investing landscape.
As data shows, although more investors had arrived, they were largely unfocused in terms of the stocks they were looking to buy and hold. In 2020 and early 2021, we saw wild fluctuations in terms of the stock purchases retail investors were making.
While ETFs were initially the dominant stock to buy, we saw travel stocks, growth, ESG firms and meme stocks inspired by Reddit forum WallStreetBets rise to prominence.
These figures are indicative of the reported trading patterns of Gen Z retail investors. In a survey conducted by Barclays in 2021, “Over a fifth (21 per cent) of Gen Z investors say they are investing to take advantage of the market and 16% plan to ‘play the markets’ to get rich quick.”
The survey also found that most Gen Z investors planned to dissolve their investments within five years. Almost one-third of respondents also claimed that they are more prone to taking risks with their investment choices.
However, Apex’s Q4 findings suggest that younger investors may have simply been taking on new approaches in a bid to mature in their approach to holding stocks and shares. With the focus of Gen Z investors on the emergence of new technologies like the metaverse – a new frontier that’s being touted as the next evolution of the internet – the aforementioned five-year-plan of investors may have given way to a more long term focus.
Building on Metaverse Enthusiasm
The metaverse became a hot topic in late 2021 as Facebook (FB) opted to rebrand to Meta. The move resonated with Gen Z investors: FB stock climbed two spots to #12 place in the most sought after companies within the age range. Likewise, Roblox (RBLX) and Unity (U) experienced significant growth, climbing 36 places to #36 in Apex’s data.
Although we can see evidence of the metaverse experiencing the same investor furore as the meme stock frenzy of early 2021, Maxim Manturov, head of investment advice at Freedom Finance Europe has been quick to specify that the two entities represent completely different investment options:
“Overall these are quite different things and unlikely to follow the same scenario. The main difference between meta and memes is that in the first case we have real technology capable of attracting new customers or creating demand for other tech companies’ products thus creating value – while memes were nothing more than a speculative topic and a consequence of “easy money” and great liquidity in the system coupled with pandemic factors,” Manturov said.
“That being said, it should not be forgotten that meta is only at the beginning of its journey and if this technology really proves itself, in the long term meta will allow many companies to gain additional leverage for growth and become more than just hype.”
As excitement for the metaverse continues to build, we’re seeing younger investors adapt to exploring stocks with stronger fundamentals that support the positive sentiment around them. Although the meme stock frenzy of last year was an exciting time for investors looking for a quick profit, the progression towards emerging tech and sustainability stocks is likely to create a more lucrative ecosystem for Gen Z investors to build on.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Dmytro is a finance writer based in London. His work has been published in The Financial Express, The Diplomat, IBM, Investing.com, FXEmpire, Investment Week and FXStreet.