What do retail investors own?

‘If you hope to distinguish yourself in terms of [investment] performance, you have to depart from the pack. But, having departed, the difference will only be positive if your choice of strategies and tactics is correct.’ – Howard Marks

The renowned US investor might be onto something. For investors to achieve superior results, they have to have a portfolio that looks different to the market – and they have to be correct in their choices.

This is much easier said than done, of course, especially for so-called retail investors who are often at a disadvantage compared to professional investors. For starters, retail investors usually have jobs in other industries and don’t have the time to follow all the company announcements or attend events with company management for a better understanding of future prospects. They’re also influenced by social proof and media hype, leading to a focus on short-term gains rather than long-term goals. As a consequence, many retail investors routinely make stock selection mistakes.

But there are benefits to being a retail investor. In a highly concentrated market like the JSE, a handful of companies make up the majority of the total market cap. Most of the roughly 240 companies are too small and not liquid enough for large investment managers to buy enough shares to fill their portfolios, which makes it difficult for those managers to reflect the full breadth of choice of the companies listed on the exchange.

The average retail investor, on the other hand, can buy shares in just about any listed company. Professional investors who follow Marks’s principle of being right and different would love to see what choices the retail investors are making, but this data is notoriously hard to come by as you can’t just peek into an individual’s private portfolio.

At 22seven Insights, we’re in the privileged position of being able to aggregate the investing behaviour of groups of retail investors by scanning the holdings of ~7,000 22seven users across major share-trading platforms. We did this at the end of January 2023 to see what trends we could see…

First, we looked at the large companies – the ones with the biggest market caps included in the JSE Top 40 Index. Among 22seven users, the most commonly held shares at the end of January 2023 were Sasol, MTN and Naspers.

On its own, this information isn’t too surprising and its likely that professional managers would also have these companies in the top 10 of their flagship funds. Whats more interesting is what’s not in the top three holdings: the likes of Richemont, Anglo American, FirstRand and British American Tobacco, all of which are larger companies than Sasol or MTN.  

But where it gets really interesting is when we look at the smaller companies…

The graphic above shows which smaller companies were very common holdings in the sample: an interesting mix of energy, fintech and retail. Compared to giants like MTN et al, these companies are tiny and it’s highly unlikely that any major investment firm would have them in their top 10 list.

Based on our short analysis, it seems that the portfolios of retail investors do indeed look different, with a different mix of companies, but will these investors be right in their choices? We look forward to following up on their performance in due course.

This research is an example of 22seven Insights’ ability to analyse niche sectors of consumer spending. Want to find out what’s happening in your industry? Get in touch using the button below.