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 brett.philbin@dowjones.com
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