Individual Investors Taking Risk Off the Table While Switching to Quality Stocks: CEO of TMX

John McKenzie, CEO of TMX Group, says retail activity remains high compared to pre-pandemic levels. (Photo illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images)

The head of Canada’s largest exchange operator says he sees a shift in sentiment among retail investors as they take risk off the table and shift their focus to higher-quality stocks.

“What we tend to see is that in an uncertain market in trading activity, both retail and institutional in general, you’re going to see what I call a flight to quality, in terms of more investing in higher quality, higher quality names with more predictable earnings streams and dividend growth,” said John McKenzie, Chief Executive Officer of TMX Group (X.TO). Yahoo Finance Canada in an interview.

Investors are interested in TSX heavyweight sectors like financials and energy, both on the equity and options side, he says.

Overall trading volume was down in 2022, but the dollar amount of trading activity had increased, suggesting more activity in higher-priced stocks, he adds.

Retail revenue is a very small part of TMX’s revenue, says McKenzie, but adds that it’s a very important part of the overall financial market because “this is where a lot of the pricing happens.”

The past year has been a very turbulent time for capital markets as central banks around the world conducted some of the most aggressive rate hike campaigns in history, inflation was rampant and consumer spending began to feel the pressure.

2023 has proven to be much more subdued so far as markets have rallied so far save for a streak in the tech sector.

Retail activity has slowed from all-time highs during the pandemic, when meme stocks were all the rage and investors were in lockdown, but some of that activity has continued, says McKenzie.

“In general, we’re seeing overall retail participation is higher than it was before the pandemic, and you would expect that because there are more tools available. There are more products that retailers can invest directly, we added another nearly 100 ETFs to the platform over the past year, all of which are retail-focused products,” he said.

TMX reported after the close of business Monday that fourth-quarter earnings and sales increased compared to the same time a year ago. The company also announced a five percent dividend increase to 87 cents per share.

The company has been on the lookout for acquisitions lately to improve its capabilities in providing market data to clients in order to diversify its revenue mix. It also helps generate more stable, recurring income and offsets some of the income volatility that capital markets operations can experience.

Michelle Zadikian is Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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