Paving The Way For New Investment Patterns: How COVID Influenced The Trading Behaviour of Investors

The effects of Covid-19 pandemic have been far-reaching. Individuals, businesses and governments across the globe have been impacted on both a personal and financial level by the health crisis. 

The impact of the pandemic has also been felt heavily in the world of investing, with fundamental shifts in investor appetite towards certain stocks and emerging trends. 

(Image: Financial Times)

As we can see from the chart above, the pandemic has also seen an unprecedented rise in the number of retail investors arriving on the market. With the average daily volume of equity options traded in the US climbing to more than 40 million – more than double what it was prior to 2020 – we can see that the rise of retail has led to a fundamental shift in how the market behaves. 

According to Freedom Finance Europe’s head of investment insight, Maxim Manturov, this new influx of retail investors “looks like the consequence of the pandemic and the stimulation packages that followed. This created a pool of funds retail investors could start investing into stocks. As per Fidelity report, there were 26M retail accounts in 2020, i.e. up 17% compared to 2019, while the daily trading volume doubled.”

So how has the pandemic influenced the trading behaviour of this new investor landscape? Let’s take a deeper look at the emerging investment patterns taking place in the age of Covid-19:

Sustainability Takes Centre Stage

Sustainable investing has stolen the spotlight in the wake of the pandemic. While attention towards ESG funds has been a growing cause for urgency among many businesses, the influx of retail investors aiming to make sustainable investments has led to ESG compliance becoming essential for businesses. 

(Image: FT Adviser)

As the data from FT Adviser shows, retail sales of ethical funds have climbed to almost £4 billion in 2020, with sentiment towards ethical business practices reaching fever pitch during the height of the pandemic. 

(Image: Moneyfarm)

As we can see from the study details above, company behaviours towards social responsibility and attention to environmental issues are regarded as among the most important to over two-thirds of survey respondents. 

With this in mind, we’re naturally seeing more attention being paid to more sustainable investing options from retail investors – with the trend likely to continue gathering momentum as we transition away from the age of the pandemic and towards the era of the ‘new normal’.

Remote Work Influences

The rise of remote work has influenced the investing landscape in many ways, with more money saved for businesses on costly office locations and through employees finding more time and fiscal freedom without the burden of commuting each day. However, it’s also significantly altered our perceptions of safe investments. 

Where investing in office blocks was once identified as a safe option, this reliable investment may now be under threat as more firms choose to reassess their need to encourage employees to operate from one central location within cities. 

In the place of physical office space, we’re seeing greater performance in the form of stocks pertaining to remote work solutions like video conferencing software, collaboration tools and distributed security solutions. 

As an example, we can see that Zoom’s Nasdaq share price grew exponentially in the months that followed the arrival of the pandemic. The stock is trading at over 500% of its value after going public in mid-2019, at the time of writing. 

The Acceleration of Trends

One look at the trends pushing the economy today indicates a pattern of significant acceleration. While there haven’t been many brand new trends emerging over the past year – with even fewer displaying signs of a trend reversal – many of those present before Covid-19 have undergone periods of extreme acceleration. 

Services like eCommerce, remote education and telemedicine to name a few are in no way brand new, but the pandemic has intensified the need for them to the point where they’ve become significantly more prevalent.