By Brett Philbin
In a bid to shine a light on the trading habits of retail investors and attract new clients along the way, TD Ameritrade Holding Corp. (AMTD) on Tuesday will roll out a behavior-based index that reveals investors' moods by tracking buying and selling by TD Ameritrade's customers.
The monthly Investor Movement Index, or IMX, is based on trading data from a sample of the Omaha, Neb., online brokerage's 6 million funded accounts in which clients have made at least one trade during the month. The sample size is adjustable from month-to-month, the firm said, and will include information from several hundred thousand clients.
TD Ameritrade, which boasts roughly 340,000 trades per day, as of December, will then use that market information to calculate a score that measures "what investors are actually doing" and how their portfolios are evolving. The approach is an effort to distance the company from opinion surveys in favor of findings based on investor activity.
"We know there's a disparity between what people say they are going to do and what they actually do, and it can be dramatic," said Steve Quirk, senior vice president of trading at TD Ameritrade.
The index, which was created over a roughly year and a half period, uses a process similar to beta weighting--a method of quantifying the profit and risk in a portfolio--to generate a score that measures client behavior. The median of all of the individual scores is the overall IMX.
While client account activity is compiled in aggregate to ensure privacy, TD Ameritrade said that each account is treated equally in the index, whether that investor has $2 million or $2,000.
"You often hear that what the big money is doing, that's the smart money, but I'd say that's not the case. Someone with less money isn't less savvy than an investor with a large account," Mr. Quirk said.
The online broker's goal, Mr. Quirk said, is for the IMX to attract attention similar to employment reports calculated by payroll processor Automatic Data Processing Inc. (ADP) and Challenger, Gray & Christmas.
Gauging retail sentiment is a key sales initiative for firms like TD Ameritrade and its main rivals, Charles Schwab Corp. (SCHW) and E*Trade Financial Corp. (ETFC), which generate revenue from commissions when customers place trades and earn fees for managing client assets.
Online brokerages, like their institutional counterparts, have been hurt by sagging trading volumes for more than two years as clients have reined in their trading following events such as the "flash crash," the European sovereign debt crisis and the on-going uncertainty about the finances of the U.S. federal government.
For December, the index was 4.94, reaching its highest level since January 2011. This climb followed a period in which the index was flat at 4.86 from October to November. A higher score suggests clients want to invest more in the equity market.
Last month, the Dow Jones Industrial Average rose 0.6%, while the Standard & Poor's 500 Index climbed 0.7% and the Nasdaq Composite Index gained 0.3%.
Mr. Quirk said the IMX data show "essentially even though we had all of this 'fiscal cliff' noise, people were going into risk-on mode" last month, referring to the belief that investors moved from less risky assets such as Treasurys into areas like stocks and commodities.
TD Ameritrade also plans to offer commentary in its monthly index release, along with the index score each month. The company said it believes such research will offer a "more complete snapshot" of retail investor sentiment. For example, such information for last month said that many of the brokerage's clients continue to own Apple Inc. (AAPL), whose stock has been under pressure, while other clients were net buyers of Facebook Inc. (FB), Intel Corp. (INTC) and Microsoft Corp. (MSFT) over the same period as those share climbed from multi-month lows.
Beyond these findings, which will be publicly available via the web, the index will also provide TD Ameritrade with a tool to lure new customers to the brokerage--the promise of additional data.
The company plans to offer its own clients--in future months--the ability to "dig into any level of detail that is desired," Mr. Quirk said.
Such information, for example, will allow active traders who lean toward technology stocks to view the most popular names in that segment.
Write to Brett Philbin at [email protected]
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