A recent analysis reveals that three inexpensive exchange-traded funds (ETFs) are among the ten most-held investments by retail investors on Robinhood, highlighting a significant shift in market participation. Over the past three decades, the internet revolution has transformed corporate America and sparked a retail investor surge, with everyday individuals gaining unprecedented access to financial data that was once limited to institutional players.
As a result of this democratization of information, retail investors made up around 25% of total equities trading volume in 2021—approximately double the levels seen a decade earlier. Online brokers have capitalized on this trend, with Robinhood Markets leading the charge by offering commission-free trades and fractional share purchasing.
One standout feature of Robinhood’s platform is its “100 Most Popular” leaderboard, showcasing the stocks and ETFs most widely held by users. Among these, the top positions are occupied by familiar names, including the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust, which rank as the fifth and ninth most-held securities, respectively. Interestingly, these ETFs outperform notable stocks like Alphabet, Meta Platforms, and Netflix in terms of popularity on the platform.
The Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF Trust (SPY) both aim to mirror the performance of the S&P 500 index, which has historically provided a reliable long-term investment strategy. According to Crestmont Research, data spanning 20-year rolling periods shows that every examined timeframe produced positive returns. This long-term stability suggests that investing in these ETFs is likely to be profitable, making them appealing options for retail investors.
The key difference between the two ETFs lies in their net expense ratios. While the SPDR ETF has a net expense ratio of 0.0945%, the Vanguard ETF’s is significantly lower at just 0.03%. Though the difference may seem minor for smaller investments, it can lead to substantial savings for larger portfolios held over decades.
Completing the trio among Robinhood’s top holdings is the Vanguard Total Bond Market ETF (BND), which focuses on U.S. Treasuries, corporate bonds, and other high-quality, income-producing securities. This bond ETF has become more attractive as concerns over stock valuations grow. The S&P 500’s Shiller Price-to-Earnings (P/E) Ratio indicates that the market is at one of its highest valuations ever, raising alarms among investors.
Amid such market conditions, many retail investors are turning to the Vanguard Total Bond Market ETF as a safer alternative for generating income, especially given the potential for a market correction or downturn. The ETF also boasts a low expense ratio of 0.03%, further incentivizing its appeal to those looking to diversify and hedge against market volatility.
In summary, these findings underscore the growing influence of retail investors in today’s market landscape, driven by technological advancements and shifts in investment behavior. With an eye on both equity and bond markets, investors are strategically positioning themselves to navigate the complexities of an evolving economic environment.
