Tech companies, electric-vehicle makers and some meme stocks are part of the aggregate mix of equities inside the portfolios of Robinhood users, according to a new index from the brokerage app geared at new investors.
These are stocks like Amazon AMZN, +2.66%, Microsoft MSFT, +2.30%, Tesla TSLA, +3.60%, Apple AAPL, +1.88%, Ford Motor Company F, -0.32% and Disney DIS, +2.54%. It’s also Nio NIO, +8.37%, GameStop GME, +11.96% and shares of AMC Entertainment Holdings’ AMC, +12.50% preferred equity units APE, +8.22%.
It all shows Robinhood users are buying — and holding onto — companies “they know, understand and believe in for the long-term,” the company said in a Friday morning announcement unveiling the Robinhood Investor Index.
“The Index captures how our customers are investing based on the top 100 most owned stocks on Robinhood,” the company said in a statement.
“Unlike most other indices, it isn’t weighted by dollars, but by conviction. We measure a customer’s conviction for each investment by looking at the percentage it makes up of their portfolio,” Robinhood added.
“‘Unlike most other indices, it isn’t weighted by dollars, but by conviction. We measure a customer’s conviction for each investment by looking at the percentage it makes up of their portfolio.’”
“And to ensure that all customers are equally represented, we average conviction for each investment across all customers, whether they have $20 or $20 million in their account,” it added.
“The index does not reflect the positions or performance of any one individual investor, but rather it is an aggregate view of what our customers are investing in on a relative basis,” Robinhood said, noting that it will update the index monthly. (The index does not include exchange-traded funds or cryptocurrency.)
As institutional and retail investors grapple with volatile stock markets and assess the chance of a recession, Robinhood is hoping there can be value in users seeing where others are putting their money.
For all of 2021, the 100 most broadly held stocks for Robinhood users beat the overall performance of the Nasdaq Composite, and now the two are essentially on par, according to Robinhood’s data.
“As investors grapple with volatile stock markets and assess the chance of a recession, Robinhood is hoping there can be value in users seeing where others are putting their money.”
“Validation is really kind of important to a segment of our investors, and so they’ll find this very valuable,” said Steve Quirk, Robinhood’s chief brokerage officer.
Put another way: Validation is effectively knowing that a certain group of people are taking the same approach; for some, it helps to feel like they are not alone.
Of course, there can be pitfalls in completely following what others do, but Quirk noted the index is just one data point to inform investors’ decisions.
Other gauges paint a gloomy view of equity markets. More than half of people voted that stock prices will decline in the coming six months, according to the latest sentiment survey from the American Association of Individual Investors.
But that could be a ‘buy’ signal, because the organization views the sentiment survey as “a contrarian indicator” as, for example, an opportunity for value.
In all, the most represented sectors in the index include consumer durables, technology and consumer services, Robinhood said.
In early 2021, shares in meme stocks like GameStop soared in value, buoyed by social media support from places like Reddit’s WallStreetBets.
But Robinhood came under intense criticism when it temporarily halted buy 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 later said, also emphasizing that the wide majority of Robinhood users were buy and hold investors instead of traders eyeing short-term plays.
Now Robinhood has a new challenge: Rough stock-market conditions are hammering user portfolios and presenting headwinds for the company itself. Last month, Tenev announced plans to cut staff by 23% due to weakening economic conditions that were crimping trading activity and reducing the value of their holdings.
Assets under custody dropped 31% from the first quarter to $64.2 billion in the second quarter, Robinhood said in its second quarter earnings results.
Robinhood HOOD, +4.95% shares are down almost 40% year to date.