How Millennial Investors in Latin America Have Broken the Mold

Latin Americans aged between 27 and 40 are becoming active investors in the region, but with a different focus from that of their parents and forebears

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October 26, 2022 | 05:13 PM

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Bloomberg Línea — Millennials, those born between 1980 and 1995, are no longer the generation that used to be characterized as apathetic and self-centered, but rather have now grown up and today are economically incorporated young adults who are beginning to think about their wealth.

On this path, they are beginning to make their first investments, and their emerging profile strongly differentiates them from other generations. “A large part of this generation invests with a lot of information and risk tolerance, and focuses mainly on technology companies in the US market”, according to Maximiliano Bagilet, a financial advisor at TSA Bursátil.

This generation, many of them who are digital natives, i.e. they did not experience life pre-Internet, have made technology their main tool to obtain and exchange financial information, as well as managing their wealth through digital platforms.

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Another characteristic of those aged between 27 and 40 is that they invest in pursuit of profit, and not to safeguard their capital as their parents tended to do.

Likewise, this is a generation that earned its first income in a context of inflation in many countries in the region, which strongly influences their financial decisions. Thus, these young people accept the high degree of risk and volatility and rely heavily on their knowledge, while being very clear that having money still means paying high inflation.

“A very common aspect in the way this group of young people invest is that they tend to be more interested in investing in companies in the technology sector,” says Damián Vlassich, equity analyst at IOL invertironline. “This is mainly because these are the companies and products they tend to consume the most”.

In general, among their targets for investment are companies such as Google (GOOGL), Apple (AAPL) and Microsoft (MSFT), as well as the market segment in which they consume on a day-to-day basis, such as Netflix (NFLX), Spotify (SPOT) and Starbucks (SBUX), companies in which they place their trust.

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“In Argentina in particular, Argentine deposit certificates (CEDEARs) are the best tool for this niche”, says Bagilet, who also highlights cryptocurrencies as another instrument that has gained ground. “Almost the entire Z generation (the one that follows millennials) is currently invested in crypto”.

Regionally, according to UBS Investor Watch, Latin American assets have done better in the last 20 years than those of other countries. The end of hyperinflation and exchange rate policies to fight inflation and in favor of floating currencies have helped promote growth and reduced vulnerability, and the focus on low inflation and fiscal prudence should continue in the coming years.

The development of the financial industry should also result in greater opportunities for diversification and attractive returns, according to UBS.

These generations tend to rely more on technology, not only for information and education, but also to choose new lifestyles, such as deciding what to do with their money or savings. Choosing how to invest is part of this trend.”

Gonzalo Abalsamo, co-founder and CEO of Simplestate

Not only shares

The multiple investment platforms and the products they offer also make it easier for young people to approach other types of investment. Such is the case of Simplestate, an Argentine real estate investment startup, which seeks to open up investment markets with a minimum investment.

Since its inception three years ago, the startup has registered a strong growth in the number of young people who have started to invest in the real estate market. Taking into account the age range of between 20 and 40 years old, Simplestate recorded an increase of more than 1000% in this age group over the last two years.

“These generations tend to rely more on technology, not only for information and education, but also to choose new lifestyles, such as deciding what to do with their money or savings. Choosing how to invest is part of this trend,” says Gonzalo Abalsamo, co-founder and CEO of Simplestate.

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“These centennial and millennial investors are much more risk-takers, and are informed by social networks, without the intermediation of advisors,” he adds.

The younger you are, the less capital you have; as you get older, the more capital you accumulate. So, also as a general rule, as a young person you have more time to recover from a loss than as you get older in life. Also, the less money you have - which usually correlates with how young you are - the more risk you should be taking, just to accumulate more capital over time.”

Nicolás Galarza, CEO and founder of Quiena Inversiones

Beginners vs. advanced

Continuing with the possibilities that today’s investment platforms open up to these new players, there is the case of Quiena Inversiones, that provides access opportunities to Latin Americans who want to invest in the US stock market.

Eighty percent of its clients are investors who are just starting out or are inexperienced savers, or who do not want to spend their time managing their investments. According to the company’s data, the instruments most used by the under-30 age group are low-cost ETFs that allow them to invest in a diversified portfolio.

The most important operations in terms of volume were seen in US stocks; energy, oil and gas; gold, silver, dividend-paying stocks, smaller companies with higher growth potential, and real estate.

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Meanwhile, those more advanced investors who self-manage their portfolios invested mainly in shares of Apple; MercadoLibre (MELI), Nio (NIO), Tesla (TSLA), Palantir (PLTR) and GameStop (GME).

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“The younger you are, the less capital you have; as you get older, the more capital you accumulate. So, also as a general rule, as a young person you have more time to recover from a loss than as you get older in life. Also, the less money you have - which usually correlates with how young you are - the more risk you should be taking, just to accumulate more capital over time. Taking more risk generates more returns,” Nicolás Galarza, CEO and founder of Quiena Inversiones, explained to Bloomberg Línea.

“The vast majority, and in fact it is seen in the stocks traded by clients this year, are high-risk companies where they are looking for potential, capital growth rather than a safeguard.”

Sustainable investments

Although they are not afraid of risk, in many cases the under-30s or under-40s are looking to make “conscious” investments. According to a study by UBS Investor Watch, young people prioritize those assets or projects that have the potential to generate a positive environmental, social and governmental impact.

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“That is why everything related to sustainability awakens special interest, and which is why, among the preferred shares to invest in, those of electric vehicle manufacturer Tesla stand out. Different studies have shown that sustainability and ESG issues are a key factor in determining which stocks young investors buy,” according to Vlassich, of IOL invertironline

Photo: Bloombergdfd

Short-termism

The desire to obtain a quick ROI has a lot to do with the short-termism that characterizes this generation. “Millennials do not believe in long-term investments, but they are aware that they must plan and work hard to have a better future,” according to the UBS report.

This is why investment manuals agree that equities are the most suitable instrument for the youngest investors, since despite their high risk and volatility, they generate the best returns on investment.

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However, the pandemic and the current global scenario is forcing them to be more cautious. According to the UBS report, 63% of those surveyed within this age range said they considered themselves to be moderate investors.

The most attractive alternative investments

The most attractive investments today are in the technology sector, as confirmed by the trend among young investors, although the analysis of why is a little more exhaustive.

  • According to Vlassich, of IOL invertironline, “we see it as attractive to take a position in Alphabet, Google’s parent company. This decision is determined by a combination of technical and, especially, fundamental factors, as the technology company has a significantly low price-/earnings ratio (18x) compared to both other peers in the sector, and its own historical average.
  • IOL also suggest the CEDEAR of the Nasdaq 100 Technology Index ETF, an instrument provides exposure to companies that are at the forefront of long-term transformative themes, such as augmented reality, cloud computing, big data, mobile payments and streaming services, and electric vehicles, among others.
  • Among the companies with the largest ETF holdings are Apple (13.44%), Microsoft (10.4%), Amazon (6.86%) and Tesla (4.89%).
  • IOL also suggests Berkshire Hathaway (BRKB), which along with its subsidiaries invests in companies in various sectors, such as insurance, utilities, energy, transportation, manufacturing, retail and services. Among its largest investments are Apple, Bank Of America, Coca-Cola, American Express and Wells Fargo.
  • Another alternative is the S&P500 Index ETF, the oldest ETF listed in the US and which has one of the largest volumes of assets under management, as well as the largest trading volume. With a total of 505 assets under management, the fund seeks to replicate the performance of the S&P 500.
  • Disney’s (DISN) CEDEAR, is also suggested as an option.

For his part, Quiena Inversiones’ Galarza points out that other assets that are as attractive as global stocks and bonds are real estate and commodities, such as precious metals, gold and energy, and oil and gas.

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“In the case of the under-30 age group, the recommendation is to put very little or nothing in bonds. On the one hand, because it is a more conservative investment. Under-30s have to look for risks in order to seek high returns because they can wait, and on the other hand, because in the current global context of high inflation and interest rates that, although they are rising, are still low compared to inflation, they will probably continue to rise.

“Once you have that portfolio well assembled, you can choose to put a small part of the capital, for example, 20% of the portfolio in an account where you can buy companies that interest you, which are also riskier but precisely if you do it well, i.e. buy and hold over time, the return will also be high,” Galarza says.