Retail investors taking risk off table amid move into high-quality stocks: TMX CEO

Overall retail participation level higher than it was pre-pandemic, according to John McKenzie

CHINA - 2022/07/25: In this photo illustration, the Canadian financial services company Translation Memory exchange, TMX, a logo is displayed on a smartphone screen. (Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images)
TMX Group CEO John McKenzie says retail trading activity remains elevated compared to pre-pandemic levels. (Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images)

The head of Canada's largest stock exchange operator says he's seeing a change in sentiment among retail investors as they take risk off the table and shift their focus to higher-quality stocks.

"What we tend to see is that trading activity, both retail and institutional in general in an uncertain market, you'll see what I call a flight to quality in terms of more investment in higher-quality, higher-value names with more predictable earnings streams and dividend appreciation," John McKenzie, chief executive officer of TMX Group (X.TO), told Yahoo Finance Canada in an interview.

Investors were interested in the TSX heavyweight sectors such as financials and energy, on both the equity and options side, he says.

Overall trading volumes were down in 2022 but the dollar amount of trading activity was up, indicating more activity in higher-priced stocks, he adds.

Retail trading revenues make up a very small fraction of TMX's revenue, McKenzie says, but adds that it's a very important part of the overall financial market because "it's where a lot of the price discovery happens."

Last year was a very tumultuous time for capital markets as central banks around the world conducted some of the most aggressive interest rate hiking campaigns in history, inflation ran rampant and consumer spending began to feel the squeeze.

2023 has so far proven to be much more muted with markets rallying for now, aside from a tech sector rout.

Retail trading activity has moderated from the all-time highs seen during the pandemic when meme stocks were all the rage and investors were on lockdown, but some of that activity has been sustained, McKenzie says.

"In general, we do see that the overall retail participation level is higher than it was pre-pandemic, and you'd expect it to be because there are more tools available. There's more product available for retailers to invest directly, we added another just under 100 ETFs last year on the platform, which are all retail-oriented products," he said.

TMX reported on Monday after hours that profit and revenue rose in the fourth quarter compared to the same time a year ago. The company also announced a dividend hike of five per cent to 87 cents per share.

The company has been on the acquisition trail recently to increase its capabilities in providing market data to clients as a way to diversify its revenue mix. It also helps create more stable, recurring revenues and smooth out some of the earnings volatility that can occur in its capital markets business.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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