Tech companies, electric vehicle manufacturers and some meme stocks are part of the overall mix of stocks in Robinhood users’ portfolios, according to a new index from the brokerage app aimed at new investors.
and AMC Entertainment Holdings’ shares
preferred share units
It all goes to show that Robinhood users are buying — and holding — companies “know, understand, and believe in for the long haul,” the company said in a Friday morning announcement. unveiling of the Robinhood Investor Index.
“The Index captures how our clients invest based on the top 100 most-occupied stocks on Robinhood,” the company said in a statement.
“Unlike most other indices, it is not weighted by dollars, but by conviction. We measure a client’s conviction for any investment by looking at the percentage that is part of their portfolio,” added Robinhood.
““Unlike most other indices, it is not weighted by dollars, but by conviction. For each investment, we measure a client’s conviction by looking at the percentage that makes up their portfolio.’”
“And to make sure all customers are represented equally, we take the average conviction for each investment of all customers, whether they have $20 or $20 million in their account,” it added.
“The index does not reflect an individual investor’s positions or performance, but rather is an aggregate view of what our clients 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.)
For all of 2021, the 100 most widely 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.
has fallen nearly 23% so far. The Dow Jones Industrial Average
is down nearly 12% and the S&P 500
during that period by 15%.
“As investors grapple with volatile stock markets and assess the likelihood of a recession, Robinhood hopes users can see where others are putting their money.”
“Validation is very important to some of our investors, so they will find this very valuable,” said Steve Quirk, Robinhood’s Chief Brokerage Officer.
In other words: Validation is effectively knowing that a certain group of people is following the same approach; for some it helps to feel that they are not alone.
Of course, there can be pitfalls in fully tracking what others are doing, but Quirk noted that the index is just one data point to inform investors’ decisions.
Other figures paint a bleak picture of equity markets. More than half of people voted that stock prices will fall in the next six months, according to the latest sSurvey of the American Association of Individual Investors.
But that can be a ‘buy’ signal, because the organization sees the sentiment survey as ‘a contrarian indicator’ as, for example, an opportunity for value.
In total, the most represented sectors in the index are consumer durables, technology and consumer services, said Robinhood.
In early 2021, shares of meme stocks like GameStop rose in value, bolstered by social media support from places like Reddit’s WallStreetBets.
But Robinhood was heavily criticized when it temporarily halted buy orders for GameStop and other companies amid the trading frenzy. It was a necessary step because of collateral requirementsCEO and co-founder Vlad Tenev later said, also emphasizing that the vast majority of Robinhood users buy and hold investors instead of traders playing short term.
Now Robinhood has a new challenge: rough stock market conditions hammer on user portfolios and provide headwinds for the company itself. Last month, Tenev announced plans to reduce staff by 23% as a result of weakening economic conditions that hampered trading activity and reduced the value of their assets.
Assets in custody were down 31% from the first quarter to $64.2 billion in the second quarter, Robinhood said in its second quarter results.
stocks are down nearly 40% so far.