Gen Y and Z investors outperform baby boomers in 2023
Fintech Openmarkets’ latest quarterly share trading data reveals that Gen Y and Z portfolios outperformed those of Gen X and the Baby Boomers, with median 12-month returns of 6.15%.
The median 12-month returns for a Gen X portfolio in Q2 of 2023 wasn’t far behind at 5.6%, but the Boomers barely scraped over the 5% mark, posting median returns of 5.06%.
Gen Y and Z’s trading style boosted portfolio performance
Openmarkets chief executive Dan Jowett says Gen Y and Z’s performance can be attributed to these younger traders' buy-and-hold strategy, defensive trading style, and a particular focus on small-cap stocks.
“Despite having the lowest portfolio diversity of all generations, younger Australians have achieved higher returns by balancing exposure to small-cap growth stocks with larger low-risk assets like banks and Listed Investment Companies (LICs) to manage overall risk,” said Jowett.
According to Openmarkets, 84% of Gen Y and Z’s trading volume in Q2 was in small-cap LICs. Typically, small caps carry more risk than stocks in established companies (large-cap stocks) but do carry the potential for high growth over the long term.
The popularity of small-cap LICs bolstered over the last 12 months, according to Jowett, with Gen Y and Z investors “taking advantage of low LIC share prices, many of which have recently traded at a discount to asset book value”.
In the year to 30 June 2023, the most bought shares included stocks in Australian Foundation Investment Company and Argo.
But by putting a significant portion of their eggs into one basket, and not maintaining a sufficient level of portfolio diversification, Gen Y and Z risk creating a weak spot in their investment portfolios.
In fact, diversification is becoming an issue across the generations.
Investment portfolio diversification continues to drop
Openmarkets found that, on the whole, portfolio diversification continued its downward trajectory from the last quarter across all generations included in the study.
Baby Boomers had the highest level of portfolio diversification, at an average of 6.9 stocks, followed by Gen X at 4.7, and Gen Y and Z not far behind, with an average of 4.4.
Despite their lower diversification on average, Gen Y and Z were busy trading throughout the year.
Younger investors upped their trading volume this quarter
While Gen Y and Z made the least trades overall in the year to 30 June 2023, at an average of 13 trades, they were the only generational group to actually increase their trading volume, placing 25% more trades than last quarter.
Boomers traded with much the same enthusiasm as in Q1, only reducing their trading volume by 4% to an average of 26 annual trades. Gen X took the more conservative route this quarter, reducing their trading volume by a significant margin of 16%, down to an average of 14 trades.
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