July 12, 2025 – Since the onset of the COVID-19 pandemic, retail investors have become a significant presence in the stock market. Over the past five years, trading flows have increased 400% among 18-25 year-olds, while flows from lower-income households (below $35,000) rose nearly 450%.
In the first half of this year, cumulative net retail purchases reached a record $155.3 billion.
Source: JPMorgan
As retail investors put more capital into the stock market, while also increasing their trading activity, their market impact has grown tremendously.
Off-exchange volume, a proxy of retail investor volume (as it signals trades from commission-free platforms like Robinhood), has spiked from below 40% five years ago to more than 55% of total U.S. equity volume.
This relatively new retail trading dynamic is important for professional investors to pay attention to, as this retail volume is not just going into the broad based market indexes.
According to a recent study by Toomas Laarits and Jeffrey Wurgler, finance professors at NYU Stern, the median retail investor spends just six minutes on research per trade, primarily right before making the trade. The average retail investor spends approximately 30 minutes researching an investment before making a trade, mainly following price charts and analyst opinions, while exhibiting little interest in traditional fundamental analysis. The study discovered that retail investors overwhelmingly focus on price charts as opposed to fundamental analysis, with the most common stock price lookback period being just one day. Most of the investors in the study typically held an investment for only several weeks.
The study also found that traditional metrics used by professional investors, such as beta, cash flow analysis, and balance sheet examination, are “almost nonexistent” among the retail investor research process.
As a result, retail traders tend to focus on more speculative stocks discussed on social media such as Reddit and Youtube, with demand for these securities driven primarily by social contagion and viral hype as opposed to sound business fundamentals.
After April’s stock bear market, retail investors came out in force, buying the dip aggressively. During this buying spree, low-quality stocks and the shares of money-losing companies were favoured by the retail set. According to the Wall Street Journal, through late June, the 858 Russell 3000 small cap stocks with negative earnings have posted average returns of 36%, significantly outperforming their profitable peers while also punishing short sellers.
As such, professional investors need to adapt to this new reality by considering not just fundamental analysis but also incorporating what might capture retail investor attention into their investment framework. Short sellers and hedgers must be particularly attuned to retail trader interest, lest they get run over by an army of retail traders pushing up junk stocks while trying to manufacture a short squeeze (as they previously did with GameStop and other meme stocks).
One can make a cohesive case that this large, non-fundamental market presence has made the U.S. equity market less efficient. That said, just because a market is more inefficient, it does not mean that it is easier to profit from it. However, it does mean that certain securities may have become more unpredictable, demonstrating price action not justified by fundamental business performance.
The six-minute retail trader research window may be short, but its influence on markets is anything but minor. Retail trading has ushered in a profound shift in markets, where traditional fundamentals now share the stage with social media buzz and brand familiarity. Like it or not, the six-minute retail investor isn’t going anywhere, and professional investors must pay close attention to this new force in the market.
Accelerate manages five alternative investment solutions, each with a specific mandate:
- Accelerate Arbitrage Fund (TSX: ARB): Merger Arbitrage
- Accelerate Absolute Return Fund (TSX: HDGE): Absolute Return
- Accelerate OneChoice Alternative Multi-Asset Fund (TSX: ONEC): Multi-Asset
- Accelerate Canadian Long Short Equity Fund (TSX: ATSX): Long Short Equity
- Accelerate Diversified Credit Income Fund (TSX: INCM): Private Credit
ARB gained 1.4% in June, while the benchmark S&P Merger Arbitrage Total Return Index increased by 0.8%. Year-to-date, ARB has increased 7.7% compared to the benchmark’s 4.1% return.
While activity in the merger market remains robust, with 20 public M&A deals announced in North America worth more than $46 billion last month, the Fund only participated in two. Namely, a large friendly biotech buyout and a subscription receipt arbitrage investment, both of which reached the Fund’s hurdle rate and low-risk requirement for investment.
Meanwhile, the SPAC market remains very active. In June, there were 10 SPAC IPOs, raising $2 billion in total. The Fund participated in seven of these deals, while passing on three when they were deemed unattractive. Every SPAC IPO that the Fund participated in traded up, given healthy secondary market demand for these new issues. In addition, the Fund was able to crystallize upside optionality by exiting specific SPACs that have traded up upon merger announcement, capitalizing on the return of significant retail interest in these investment opportunities. These bullish SPAC trading dynamics that have emerged this year have been buoyed by the return of a contingent of retail investor interest in the asset class (similar to 2020).
Currently, ARB is 136.9% long and -11.4% short (148.2% gross exposure). The Fund is allocated 66% to SPAC arbitrage and 34% to merger arbitrage, split 15% to private equity buyouts and 19% to strategic mergers.
HDGE declined by -0.4% in a challenging month for hedged portfolios.
Long short factor portfolios faced difficult conditions primarily due to their short positions, as low-quality, overvalued securities with poor momentum faced a reversal in fortune and were bid up aggressively. Across both U.S. and Canadian markets, long short value, quality, price momentum, and trend portfolios generated negative returns in June, as their short portfolios materially outperformed their long positions. Nevertheless, HDGE’s risk models helped mitigate losses on the Fund’s short portfolio.
The Fund’s top three contributors to monthly performance include a long position in Celestica and short positions in Simulations Plus and Neogen. The top three detractors include short positions in Evolent Health, Forward Air, and Green Plains.
ONEC returned 0.8% in a month in which hedge fund allocations led aggregate Fund performance.
Canadian long short equity led the Fund’s diversified multi-asset framework with a 5.2% monthly return. The Fund’s global macro allocation also contributed strongly, with risk parity generating a 3.5% return and managed futures adding 2.8%. In addition, ONEC’s merger arbitrage allocation returned 1.4%.
The Fund’s leveraged loan, real estate, infrastructure, and gold allocations all generated positive returns of less than 1.0%.
Conversely, the Fund’s absolute return, private credit, and commodity allocations detracted from monthly performance, with declines of -0.4%, -1.4%, and -1.6%, respectively.
ATSX gained 5.2% in June compared to the benchmark S&P/TSX 60’s 2.2% return. Year-to-date, ATSX is up 13.1% while the benchmark has returned 9.5%.
While Canadian multi-factor portfolios faced a challenging month of performance, driven by a significant rally in low-quality junk stocks, ATSX’s structure as a 150/50 alpha extension fund, combined with strict risk management of its short book, allowed the Fund to thrive despite a challenging environment for short selling and hedging.
The Fund’s top three contributors to monthly performance include long positions in Pan American Silver and Finning International and a short position in Descartes Systems. The top three detractors include short positions in Fiera Capital, goeasy, and Capstone Copper.
INCM declined by -1.4% in June due to a mix of a decline in the value of the U.S. dollar (the Fund’s portfolio is 100% U.S.-denominated), along with a slight widening of private credit NAV (net asset value) discounts.
Specifically, the median private credit NAV discount of the 43 liquid private credit funds that we track widened from -8.5% to -9.9% during the month.
Currently, INCM is allocated to twenty private credit pools, representing 4,153 loans and investments, of which 85.0% are senior secured and 91.8% floating rate. The underlying Fund private credit pools trade at an average -6.1% discount to the value of their loans.
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Disclaimer: This distribution does not constitute investment, legal or tax advice. Data provided in this distribution should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information in this distribution is based on current market conditions and may fluctuate and change in the future. No representation or warranty, expressed or implied, is made on behalf of Accelerate Financial Technologies Inc. (“Accelerate”) as to the accuracy or completeness of the information contained herein. Accelerate does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed. Past performance is not indicative of future results. Visit www.AccelerateShares.com for more information.
