Robinhood investors piled into equities at the perfect time to cash in on stocks' epic rally, according to Societe Generale.
The Wall Street firm sorted through data from Robintrack, a third party aggregate of Robinhood trading data, and found that the Silicon-Valley stock trading app's clients nailed the market bottom. Robinhood users total holdings increased in March, exactly when stocks bottomed and started their stunning trek upward.
"For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March," Societe General global quantitative research analyst Andrew Lapthorne told clients.
Retail investors have sometimes been derided as the so-called dumb money, chided for their lack of sophistication compared to Wall Street pros. Experienced investors have been bewildered by the behavior of retail investors in recent weeks as the newbies poured money into stocks most affected by the global pandemic, like airlines and cruise lines. In particular, criticism has increased surrounding those trading on millennial favored stock trading app Robinhood, where not only have the number of clients and trades ballooned, but where investors make "nonsensical trades," such as buying bankrupt companies and penny stocks like Hertz or J.C. Penney.
But Lapthorne said amateur investors increased their holdings in stocks in the small-cap benchmark just in time to cash in on a 40% rally in the Russell 2000. Meanwhile, many veteran investors and hedge fund managers swore stocks would retest their lows.
"The market bottom does coincide with a step-up in overall Robinhood positions," said Lapthorne. "As retail investors, based on the Robinhood dataset, have charged into the market at its very inflection point. Of course only time will tell if this has been profitable in the long run."
Goldman Sachs said popular stocks among retail investors are outperforming the top stocks of hedge funds since the March lows.
Societe Generale said retail investors are sometimes associated with stocks that institutional investors wouldn't touch, either because they are too small or because they are too speculative. That gives retail investors have a larger presence in these names," said Lapthorne.
"The reason for all the recent publicity surrounding Robinhood investors is that when it comes to bombed out distressed equity, retail investors have a bigger voice and therefore greater potential influence, said Lapthorne.
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— with reporting from CNBC's Michael Bloom.