The latest statistics revealed by Bloomberg's analysts say that millennials are arguably the most risk-taking investor group. Why?
Recent data collected by TD Ameritrade from its 6.9 million clients sheds light on the trading behaviour of different age groups, with millennials showing some of the most surprising patterns. To get more into detail about this, let's talk about the "top 10 most traded securities by millennials", as outlined by Ameritrade.
The ranking includes such giants as Apple, Netflix and Facebook, occupying the top 3 positions, followed by Disney, Twitter, Amazon and others.
Even though there is nothing surprising about the companies that made it to the top 10 list as they all cater to the interests of millennials, except for the 5th stock in this list that has taken many experts by surprise. VelocityShares 3x Crude Oil ETN (NYSEARCA: UWTI) was named "arguably the most dangerous ETF on planet Earth" by Bloomberg yet it appears to be the 5th most popular investment choice of millennials. The UWTI is triple leveraged and almost 10 times more volatile than S&P 500 Index, and it comes with credit risk on top of all of this.
"The words 'investors' and '3X leveraged' should never appear in the same sentence", says Josh Brown, Chief Executive Officer of Ritholtz Capital Management.
Interestingly, UWTI does not appear on any top investment choices list of older demographics. So why is it so popular among millennials?
"The millennials investing in this ETF might view it as play money", said David Schawel, Portfolio Manager at New River Investments.
But yet another explanation for this risky trading behaviour may be the fact that UWTI stock was not only the 5th most traded security but also the 4th most sold one among millennials. This explains the popularity of this highly volatile stock as young traders are the ones trading it within a short time frame, selling it out almost immediately.
As we have already discussed, it comes as no surprise that millennials don't invest the same way as older demographics. But are all millennials so risky?
A recent research conducted by the Global X Funds says that not all millennials invest the same. They divided those born between 1980 and 2000 in two groups based on the size of their bank accounts.
The first group was named "The Builders" and included those who have recently got interested in investing, hold around $100,000 to $250,000 in investable assets and are new to saving. The Builders don't tend to rely on professional financial advice or pay much attention to savings, what makes them very different from all other age groups.
"The builders tend to be tech-savvy, do-it-yourselfers. They have the right level of risk aversion and they are trying to invest and be thoughtful about it", said Bruno Del Ama, CEO of Global X Funds.
The next group is called "Adrenaline Techies" and includes wealthier millennials with investable assets of more than $250,000. The "adrenaline" part of this group's name comes from their behavioral patterns that involve very frequent and irregular trading as well as relying on roboadvisers and apps to get financial info. This group is 125% more likely to trade more than 10 times a month.
"As millennials get wealthier, they start trading way too much, even though they are saying that they are building a nest egg. They are not being consistent with their stated objectives", said Del Ama.
Millennials lead the way in ETF investments
Now, let's have a look at what exactly millennials invest in. The TD Ameritrade's reports mentioned in the beginning of this article revealed some more interesting statistics: millennials' use of exchange-traded funds (ETF) has boomed over the past years and grown by 60% just in the last year. Their interest in ETFs is rapidly growing compared to the older generations, with the youngest of millennials being the fastest adopters.
According to Ameritrade, ETF assets have risen by 43% since 2013 and now make up $2.3 trillion. What is more, the ETF craze is only going further as more than 60% of millennials claimed that they plan to increase their ETF investments by not less than $25,000 in the future.
Because of this trend, the Global X Funds launched the Global X Millennials Thematic ETF (NASDAQ: MILN) this May. This ETF is designed specifically to cater to the interests of the youngest traders and lists the so-called "Millennial companies" that are the most popular among the generation. Many of these companies made it to the list of millennials' most traded securities, mentioned in the beginning of this article. The MILN ETF has been up 8% since May.