Investor Trading Behaviour During the COVID-19 Period 20 July 2020

Investor trading behaviour during the COVID-19 period 20 July 2020

Vesparum White Paper Series Paper #3

We bring data science to equity capital markets Executive Summary

Summary of investor trading behaviour • There has been a striking contrast between institutional and retail investor trading behaviour during the COVID-19 period: o Retail investors on the well-known retail trading platforms have been a net buyer of A$9 billion of shares. o Institutional clients of the leading investment banks have been a net seller of A$11 billion of shares. • Strong support from retail investors has accompanied the ~30% recovery in the All Ordinaries Index since 23 March 2020, with these investors focusing on the companies and sectors most affected by COVID-19, namely banks, energy and travel. • Institutional investors have been net sellers of all sectors during the COVID-19 period, other than Information Technology, where they have supported some of the better performing companies including Afterpay, NEXTDC and Xero. • Institutional selling has been concentrated in sectors with significant short-term earnings uncertainty, whereas retail buying has seemingly been driven by a more medium to long-term view, with the expectation that traditionally strong businesses impacted by COVID-19 should recover.

Implications for ASX-listed companies raising capital • The long-term value of retail investors is clear based on the support shown during the COVID-19 crisis: o Secondary trading support has significantly reduced the indirect cost of raising capital (represented by the discount). o Capital raising support via strong retail take-up has provided flexibility for issuers to raise more capital than targeted. • Issuers should therefore keep the value of retail investors front of mind when making structuring and allocation decisions in capital raisings. • Paper #4 in our White Paper Series is focused on trading behaviour around capital raisings, including an analysis of short selling behaviour during the COVID-19 period, which raises important questions about current allocation practices.

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2 Net value traded since 1 January 2019 Striking contrast between institutional and retail investor trading behaviour during the first 3 months of the COVID-19 period

Cumulative net value traded1 (A$ billions) Trading on ASX by selected participants, rebased to 1 January 2019

COVID-19 period2 (deep dive on next page) 30.0 Institutional 25.0 investors selling 20.0

15.0

10.0 Trend stabilising 5.0

0.0

-5.0 Retail investors -10.0 buying

-15.0 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20

3 4 Institutional investors Retail investors

1 Total value traded does not sum to zero given the data shown excludes trading by institutional investors via other banks/brokers and retail investors via other trading platforms 2 COVID-19 period (to date) based on 21 February to 30 June 2020 3 Represented by the aggregate trading of the following investment banks: Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Macquarie, Merrill Lynch, Morgan Stanley, RBC, UBS 4 Represented by the aggregate trading of the following retail platforms: ANZ, Bell Direct, CBA/CommSec, CMC Markets, NAB and WBC Source: Vesparum, IRESS

3 Net value traded during the COVID-19 period Retail investors have been a net buyer of A$9 billion of shares, while institutional investors have been a net seller of A$11 billion

Cumulative net value traded during the COVID-19 period1,2 (A$ billions) Trading on ASX by selected participants, rebased to 20 February 2020

Striking contrast between institutional and retail investor behaviour Trend stabilising since mid-May

15.0 8,000 Retail investors +A$9B net buyer 10.0 6,000 5.0

0.0 23 March 2020 4,000 (All Ords trough)

-5.0 Institutional investors 2,000 -A$11B net seller -10.0

-15.0 0 21-Feb 06-Mar 20-Mar 03-Apr 17-Apr 01-May 15-May 29-May 12-Jun 26-Jun 3 4 Institutional investors (LHS) Retail investors (LHS) All Ordinaries Index (RHS)

4 Net value traded by sector Institutional investors have been net sellers of all sectors, except Information Technology

Cumulative net value traded during the COVID-19 period1 (A$ billions) All companies in each GICS sector

0.6 -0.1 -0.2 -0.2 -0.8 -0.8 -1.1 -1.1 -1.2 Institutional -2.1 investors2 Institutional investors -3.8 Reflects strong net buying in Afterpay, NEXTDC, Xero, TechnologyOne and Appen

Retail investors Supported companies that were significantly impacted by COVID-19

Retail 4.0 investors3 1.5 0.8 1.2 0.9 0.5 0.3 -0.1 0.0 -0.2 0.1 Information Utilities Consumer Comm. Materials Health Care Real Estate Consumer Industrials Energy Financials Technology Staples Services Discretionary

5 Net value traded by sector – Information Technology Looking specifically at the Information Technology sector, institutional investors have been net buyers of the better performing companies

Information Technology sector – share price performance during the COVID-19 period1 (%) Top 15 companies in the Information Technology sector by total value traded 55%

36% 25% 18%

6% 3% 2% 0%

-9% -14% -18% -22% -24% -30% -36% APT APX NXT NEA TNE XRO WTC MP1 ALU IRE TYR BVS CPU EML LNK

Net value traded (A$M) Institutional investors2 583 60 163 (5) 68 94 4 53 (57) (37) (11) (14) (72) (73) (67) Retail investors3 (265) (54) (41) (9) (13) (63) (3) (4) 38 23 11 7 50 64 44

Net buying by institutional investors2 Net buying by retail investors3 Neither group net buyers

6 Net value traded by company Clear differences of opinion between institutional and retail investors over household names including Afterpay, A2 Milk and the banks

Cumulative net value traded during the COVID-19 period1 (A$ millions) Top 5 net bought and sold

Institutional investors2 Retail investors3

Afterpay 583 CBA 853

Fortescue 361 NAB 764

A2 Milk 305 Westpac 746

Wesfarmers 247 Woodside 696 Net buying Net Resmed 235 ANZ 504

CBA -594 Xero -63

BHP -722 Telstra -65

Westpac -860 Resmed -71

Macquarie -967 A2 Milk -254 Net selling Net

Woodside -1,052 Afterpay -265

7 Institutional investors – Top 10 by net value traded Institutional investors have been heavy buyers of Afterpay, which was added to the MSCI Australia Index in May

Trading by institutional investors – cumulative net value traded during the COVID-19 period1 Ranked by net positive value traded by institutional investors2

Net value traded (A$M) Share price performance Rank Company Sector Institutional Retail investors3 % crash4 % recovery5 investors2 1 Afterpay Information Technology 583 (265) -80% +661%

2 Fortescue Metals Materials 361 (17) -28% +69%

3 A2 Milk Consumer Staples 305 (254) -13% +35%

4 Wesfarmers Consumer Discretionary 247 (1) -37% +51%

5 Resmed Health Care 235 (71) -32% +52%

6 NEXTDC Information Technology 163 (41) -18% +53%

7 Rio Tinto Materials 142 13 -26% +35%

8 Metcash Consumer Staples 110 (6) -23% +25%

9 Evolution Mining Materials 105 (47) -27% +73%

10 Mineral Resources Materials 102 (47) -38% +75%

1 COVID-19 period (to date) based on 21 February to 30 June 2020 2 Represented by the aggregate trading of the following investment banks: Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Macquarie, Merrill Lynch, Morgan Stanley, RBC, UBS 3 Represented by the aggregate trading of the following retail platforms: ANZ, Bell Direct, CBA/CommSec, CMC Markets, NAB and WBC 4 Represents % increase/(decrease) in share price from 20 February 2020 to low point during COVID-19 period (to 30 June 2020) 5 Represents % increase/(decrease) in share price from low point during COVID-19 period (to 30 June 2020) Source: Vesparum; IRESS

8 Institutional investors – Bottom 10 by net value traded Institutional investors have been heavy sellers of banking, energy and travel-related stocks

Trading by institutional investors – cumulative net value traded during the COVID-19 period1 Ranked by net negative value traded by institutional investors2

Net value traded (A$M) Share price performance Rank Company Sector Institutional Retail investors3 % crash4 % recovery5 investors2 1 Woodside Petroleum Energy (1,052) 696 -55% +45%

2 Macquarie Financials (967) 440 -54% +68%

3 Westpac Financials (860) 746 -48% +33%

4 BHP Materials (722) 398 -38% +49%

5 Commonwealth Bank Financials (594) 853 -39% +30%

6 NAB Financials (552) 764 -52% +38%

7 CSL Health Care (492) 131 -28% +18%

8 Treasury Wine Estates Consumer Staples (384) 48 -31% +25%

9 Qantas Airways Industrials (364) 403 -70% +87%

10 Flight Centre Travel Consumer Discretionary (363) 462 -76% +30%

9 Retail investors – Top 10 by net value traded Retail investors have targeted industries that have been heavily impacted by COVID-19, particularly banks, energy and travel

Trading by retail investors – cumulative net value traded during the COVID-19 period1 Ranked by net positive value traded by retail investors2

Net value traded (A$M) Share price performance Rank Company Sector Institutional Retail investors2 % crash4 % recovery5 investors3 1 Commonwealth Bank Financials 853 (594) -39% +30%

2 NAB Financials 764 (552) -52% +38%

3 Westpac Financials 746 (860) -48% +33%

4 Woodside Energy 696 (1,052) -55% +45%

5 ANZ Financials 504 (276) -48% +32%

6 Flight Centre Travel Consumer Discretionary 462 (363) -76% +30%

7 Macquarie Financials 440 (967) -54% +68%

8 Qantas Airways Industrials 403 (364) -70% +87%

9 BHP Materials 398 (722) -38% +49%

10 Webjet Consumer Discretionary 220 (170) -77% +48%

1 COVID-19 period (to date) based on 21 February to 30 June 2020 2 Represented by the aggregate trading of the following retail platforms: ANZ, Bell Direct, CBA/CommSec, CMC Markets, NAB and WBC 3 Represented by the aggregate trading of the following investment banks: Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Macquarie, Merrill Lynch, Morgan Stanley, RBC, UBS 4 Represents % increase/(decrease) in share price from 20 February 2020 to low point during COVID-19 period (to 30 June 2020) 5 Represents % increase/(decrease) in share price from low point during COVID-19 period (to 30 June 2020) Source: Vesparum; IRESS

10 Retail investors – Bottom 10 by net value traded Limited conviction on retail selling, with only two companies with >$100m net value sold – Afterpay and A2 Milk

Trading by retail investors – cumulative net value traded during the COVID-19 period1 Ranked by net negative value traded by retail investors2

Net value traded (A$M) Share price performance Rank Company Sector Institutional Retail investors2 % crash4 % recovery5 investors3 1 Afterpay Information Technology (265) 583 -80% +661%

2 A2 Milk Consumer Staples (254) 305 -13% +35%

3 Resmed Health Care (71) 235 -32% +52%

4 Telstra Communication Services (65) (39) -23% +9%

5 Xero Information Technology (63) 94 -37% +65%

6 Appen Information Technology (54) 60 -37% +116%

7 TPG Telecom Communication Services (51) 42 -25% +46%

8 Evolution Mining Materials (47) 105 -27% +73%

9 Mineral Resources Materials (47) 102 -38% +75%

10 Elders Consumer Staples (43) 58 -15% +35%

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