Young investors helped drive IPO activity this year: Apex Clearing President

Tricia Rothschild, Apex Clearing’s President joins Yahoo Finance Live to explain why 2020 was a strong year for IPOs and discuss expectations for SPACs in 2021.

Video Transcript

AKIKO FUJITA: Welcome back to "Yahoo Finance Live." It has been a banner year for the public markets with 217 IPOs pricing so far this year. That is a 35% jump from last year and the largest number of companies we've seen go public since 2014, at least according to data from Renaissance Capital.

Let's bring in Tricia Rothschild. She is the President of Apex Clearing. And, Tricia, you've really been focused on the retail-trading side of this. So much made of the huge enthusiasm we saw around names like a DoorDash or an Airbnb in the initial day, largely driven by retail traders as well. What stood out to you when you look back on the last 12 months?

TRICIA ROTHSCHILD: Absolutely. Thanks, Akiko. I mean, we kind of are in the catbird seat here at Apex Clearing in terms of looking at retail-investor activity. We've opened 6 million accounts in 2020, and certainly the surge in interest among the younger generation in particular has driven a lot of activities, both with IPOs and other segments such as electronic vehicles and many other inspirational or aspirational trading names.

EMILY MCCORMICK: 2020 really was a banner year here for SPACs in particular, Special Purpose Acquisition Companies, and sort of the unconventional means of going public through SPACs and also through direct listings to a degree. I'm wondering if we should expect to see a continuation of some of these unconventional means of going public next year, or has this actually peaked in 2020?

TRICIA ROTHSCHILD: So I certainly think investors are looking for access to capital markets in new and different ways, and that's where you do see increased interest in the Special Purpose Acquisition Companies or SPACs. In Apex's Millennial Top 100 Index, there are eight SPACs already that have cracked that top 100 in terms of holdings by millennial investors. And then, you know, it's a faster way to market certainly than traditional IPOs. Although even within the IPO market there's tremendous interest, and I don't necessarily see that ceasing or letting up in 2021.

AKIKO FUJITA: And, Tricia, you talked about the new traders that have come into the fold this year. About 6 million accounts opened on Apex Clearing alone. What's your thinking in terms of how sustainable these numbers are? There was some thinking initially, for example, in March or April that a lot of new investors were coming in largely because of the stimulus checks, partly because there were no other areas to put your money in, especially with, you know, sports cancelled and no real betting out there. It seems like we've kind of gone beyond that, though, with a lot of these traders who are staying in the fold.

TRICIA ROTHSCHILD: Yes. I think it's actually an interesting trend that will continue. And it's easy to dismiss younger investors as, you know, just gambling or looking for an entertainment outlet, but if you look at the change in the structure of our markets and the change in retirement funding from when, you know, my parents were starting off their careers and so forth. People are taking their investing into their own hands and certainly technology as well with access. And free trading, no commissions, more access to mobile devices, and the plethora of self-directed brokerage does allow younger people to both make mistakes and also hopefully learn as it relates to investing, whether it's in IPOs or established names.

So I do think-- and even though right now millennials own less than 7% of investable assets in the United States, that will increase. And that trend-- actually, the other catalyst I'll just add is the wealth transfer because clearly as the older generation passes on or passes on their assets to the younger generation, that itself is going to cause a continued increase in access to capital markets by younger investors.

So I think we all do ourselves a service to pay attention to how they trade, how they invest, how they learn, and what types of companies are of interest.

EMILY MCCORMICK: And, Tricia, the other data point that really caught my interest about Apex was the number of fractional trades that took place on the platform. I mean, you mentioned a growth rate of 61%-- CGAR-- since 2018, which is pretty extraordinary. And I'm just wondering now with these additional stimulus payments that we're expected to get in the new year, do you anticipate to see another surge of this, surge of retail activity? And again, to Akiko's point, what's the sustainability of those trends as well?

TRICIA ROTHSCHILD: Yeah, so fractional-share trading is another trend that kind of has come along. There's the backdrop of COVID. There is certainly the commission-free or free trading options. But fractional shares is technology driven, and it does allow investors to purchase not full shares but portions of shares for high-priced stocks. That gives you access to names like Amazon or Tesla, Microsoft, Apple for smaller amounts. It's also great for sustainable investing in ETFs as people dollar cost average their way in.

So yes, Apex has seen just under half of the trades that we process are in fractional shares, which is quite phenomenal, actually. And I do believe that that will continue to be a trend. There's just-- there's really no reason to think about a share when you can think about the dollars that you use, which is really that's the currency you relate to, digital or otherwise. And so I think that that trend of thinking about the price and the dollars as opposed to the round lots or the shares, which is really kind of an antiquated way to think about trading.

AKIKO FUJITA: And, Tricia, when you talk about some of those top fractional trades, names like Amazon, Apple, Tesla, Microsoft, Netflix certainly seen big returns this year. I wonder if, when you look at the younger group of traders, the millennial generation, if there are other factors that's driving that trade.

TRICIA ROTHSCHILD: So I guess the part that interests me the most is that connection between those household names and then, as I said, some of the more aspirational names, which are the electronic vehicles, Virgin Galactic-- like, where is the future of technology going?

And I see a little bit of a trade-off there. Some of those newer names that I just mentioned have actually risen in the Millennial 100 Index at the expense of some of those larger, more well-known stocks. But I would be remiss if I didn't say that people do still like to buy what they own, and certainly the stay-at-home stocks are still primary holdings within the Apex retail-investor base, those being things like Peloton, Zoom, those kinds of names.

AKIKO FUJITA: Yeah, we've been talking a lot about Zoom and Peloton, and to your point, they've become very familiar names over the last nine months or so.

Tricia Rothschild, the CEO of Apex Clearing or the president of Apex Clearing, it's good to talk to you today. Thanks so much for your time.

TRICIA ROTHSCHILD: Thanks, Akiko. My pleasure.