Changes in Shareholder Structure: The Rise of the Retail Investor

Over the last two years, most companies have seen a paradigm shift in investing, with more and more organizations witnessing an increase in retail shareholdings. According to BNY Mellon, retail investors accounted for 10 to 15 percent of trading volume during the 2010s and that number rose to 20 percent in 2020 and nearly 25 percent in the first half of 2022.

From our recently conducted research, we have seen that more than half of the companies we surveyed are satisfied with the level of retail investment they currently have. But at the same time, more than 25 percent of organizations would like to see more retail shareholders buy and hold their stock. 

To this end, more and more companies are actively targeting retail investors—perhaps because they are much less likely to pull money out of the market than their institutional counterparts, suggests research from Goldman Sachs. 

Let’s consider what the driving forces could be behind the rise of retail investors, why the trend doesn’t appear to be slowing down anytime soon, and what companies can do to make the most out of the moment.

Why Are Retail Investors Taking Over Wall Street?

In large part, the rise of trading apps catering specifically to retail investors has encouraged more and more newcomers to enter the market and try their chances on Wall Street.

Over the last several years, many new user-friendly trading platforms— including Robinhood, Webull and Acorns—have emerged with hopes of attracting the next generation of investors. By offering zero-commission trades and letting users buy fractional shares, these platforms have been quite successful in their efforts, to the point they’ve forced some of the trading industry’s most prominent players to follow suit.

On top of this, retail investors have found a way to coordinate their moves using social media sites like Reddit and Twitter. With pandemic stimulus money fueling their trades, retail investors experienced significant success in 2021 by pumping cash into so-called meme stocks.

This involved online groups of retail shareholders coordinating to pool their money and increase the price of certain securities. Key targets were securities where institutional investors held massive short positions (i.e. selling a security while planning to repurchase it in the future at a predicted lower price), such as GameStop, AMC, and Koss Corporation. Retail investors trading against these positions forced institutional investors to buy additional shares to cover their shorts, further driving up prices.

Retail Investors Are Here to Stay. Are You Ready?

After getting a taste of what a hefty return on investment feels like, it appears as though retail investors are just getting started. In fact, a recent Bank of America analysis found that retail investors are trading as if a recession is not imminent—despite the market’s significant downturn in the first half of 2022.

Though the investing landscape may be evolving, companies have a golden opportunity to embrace retail investors. In many ways, retail investors can be a company’s best friend.

To maximize the retail investor opportunity, organizations need to do everything they can to increase shareholder engagement. Rewarding investors for giving their time and opening up about attitudes and motivations related to their stockholding is a proven option. For example, the Stockperks platform seamlessly connects issuers with their retail investors by offering perks, experiences and opportunities for engagement on a year-round basis.

Another effective way to increase engagement is by partnering with Mediant. Our purpose-built solutions were created for the digital era and provide issuers and brokers with all the tools they need to keep retail shareholders engaged throughout the entire investor communications lifecycle.

For more information on how Mediant can help you transform your approach to retail investor communications, contact us.