Skip to Content
Stocks

The Pool of Investors is Growing Wider and Deeper

The Pool of Investors is Growing Wider and Deeper

Kunal Kapoor: I thought today I’d spend a little time talking about three trends that are empowering the investor.

So, the first of those trends is that the pool of investors is growing wider and deeper. Think about that for a second. More investors across the board, so deeper and wider. Real or perceived barriers to entry are melting away with frictionless trading, dropping the fees all the way down to zero in many instances, fractional shares and democratized access to data and insights. You have ideas such as banking as a service, BaaS, come to life. You have firms like Ellevest, which appeals to female investors, driving a very focused way around which they're bringing their value proposition to investors. And then, you have the allure of new things such as cryptocurrency, that are drawing a crowd and basically generating a shift in deeper kinds of investor activism.

All of that is still true. But if you look at Google GOOGL search queries over the past year, you'll see a surge in terms such as "learning to invest," "what is investing," "how to start investing." They're up more than a third since January of 2020, just reflecting the growing interest among investors. Even on our very own Morningstar.com, where we obviously measure traffic very, very closely, we've seen not only notable engagement in the demographic of 25- to 34-year-olds, but in the 18- to 24-year-old demographic, we've seen a surge of nearly 150% of visitors to our site. Our team is meeting that demand with new kinds of investing content and design specifically suited for those who are starting out because we believe we have a chance to empower and help these investors succeed.

What have I learned now, looking at this a year later? Possibly the most important lesson that I think we're all witnessing is that tolerance for the establishment has evaporated. Tolerance for the establishment has evaporated. There is no better example or deep interest around this than in the GameStop GME mania that I know all of you have probably been paying attention to. The Reddit board is an in-group phenomenon that successfully mobilized itself against traditional Wall Street. And in this context, even Robinhood, which Kathleen referenced earlier, is part of the establishment, almost overnight, demonstrating a shift in both investor perception and investor power immediately.

This event alone was significant in demonstrating the ripple effect of an organized few. On our Morningstar sites, for example, GameStop stock pages spiked from a really, really low average, about 500 page views a week at the end of the year, to more than 62,000 in the first week of February. You, I, and others were paying attention, and were galvanized to look at exactly what was going on. In fact, the impact was felt across our entire site. But what you can see is that the surge in interest in GameStop and AMC AMC, whose stock pages basically surged more than 6,500% and 2,500% respectively, were far, far greater than other stocks like Apple AAPL, which had an interest surge of more than 50%, Facebook FB 80%, Coca-Cola KO more than doubling. Those would be great numbers. But you look and compare to what you were seeing and completely, completely, it looks like a smaller picture.

So, investors are more emboldened to use their influence--with their pocketbooks and their proxy votes--to affect the change they want to see. Investor demands are in fact driving out the long-held notion of shareholder capitalism. That's what you probably studied to a certain degree in school, too. And that core thing, and I learned this at the University of Chicago, too, is that shareholder returns should come first. And what's happening is, you're seeing a rise instead in favor of a duty to all stakeholders, not just shareholders. That includes employees, customers, and communities. There aren't many industries that haven't been caught up in what's called the "cancel culture" this year. And no matter what you think of, it's a new landscape for every kind of firm to navigate.

Just look at what happened to celebrity-endorsed vegan milk darling Oatly. I've got a little prop here, because we are Oatly drinkers in our house. Such a friendly brand. On one side, this package belongs to who. This is the boring side with calories. It's exactly what you would expect from a brand that's trying to stand out in that grocery aisle. You might even recall its Super Bowl commercial this year, which was fun and enlivening. But when Oatly announced last year that it was taking an investment from private equity firm Blackstone, there were all kinds of questions related to whether Blackstone had links to companies that were responsible for deforestation in Brazil, and there were even questions about whether CEO Schwarzman's donations to the Trump campaign should draw scrutiny.

All this was coming from a group of Oatly consumers who identified the brand in a certain way and felt that because of their action to take that money from Blackstone, that trust and engagement had in fact been broken. Now, I personally think Oatly's response was really well done and an important case study in the value of authenticity. You should take a look at it if you haven't, and the firm is now headed to an IPO--but not without realizing the role of the investor and a sharp eye for managing reputational risks related to ESG.

And ESG and the power of investors really are coming to fruition through shareholder resolutions. Last year, in 2020, 186 ESG-related shareholder resolutions appeared on proxy ballots for U.S. companies. Average support was 28%, with 20 ESG related resolutions achieving the support of a majority of shares voted, breaking the record of 14 set the year before. These are small numbers, but they're beginning to add up. More importantly, 67 of the 186 ESG-related resolutions received at least 40% of the overall vote of minority outside shareholders. Think about that and see where the trend is heading. So what?, you're asking. Well, more investors and higher engagement among them are only positives. But they come with a real imperative for leadership from all of us. These new troops of investors need the right guides, they need sound education around long-term fundamentals and how to safeguard against predatory practices and hidden costs.

We’ve always taken this responsibility seriously at Morningstar to advocate for investors and illuminate the trade-offs and pitfalls before them. And we’ll be doing even more to serve up our long-term investing insights and tools to this rising generation of new investors.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

More on this Topic

Sponsor Center