Millennials started coming of age around the time the first internet boom was turning into the dot-com bust, so they’re intimately familiar with the concept of disruptive businesses. That may help explain why they’re so willing to put their money behind up-and-coming companies that are taking a sledgehammer to the status quo.
That penchant showed up in two ways in the second quarter: First, members of what’s now the largest living generation weren’t shy about jumping on the initial public offering (IPO) wave this year. They snapped up shares of half a dozen newly minted public companies, according to our data on the top 100 stocks held by Millennial investors.
The data also identified a second signal indicating the interest among members of this generation in companies that buck convention: their willingness to invest in businesses tied to the cannabis industry.
These insights come from a report generated by our unique access to proprietary databases of many of the financial industry’s leading online investing platforms. Because of this, we were able to dig into data on stock holdings in about 658,000 accounts of Millennial investors, each with average holdings of about $2,600. We compiled our major insights in the Next Investor Outlook, our quarterly report on these investors.
Millennials dive into IPOs, selectively
While Millennials jumped on some IPOs in the second quarter, their enthusiasm wasn’t unreserved. As the overall IPO market slowed, investors in this class were selective about which market newcomers they were willing to put their dollars into. Pinterest, Zoom Video, Chewy, Fiverr and others all went public this year, but were ignored or barely acknowledged in Millennial portfolios.
Companies with more potential to either disrupt existing marketplaces or better connect people and companies got the nod instead – or at least, enough of a nod to crack the top 100.
That includes plant-based meat company Beyond Meat, which is part of a movement to remake the food industry, and ride-hailing companies Uber and Lyft, which have already had an impact on transportation systems around the globe. Also making the top 100 were Slack Technologies, a communications platform with ambitions to replace email, and Mmtech, a platform for securities transactions in China.
The smell of cannabis wafts into the market
Five companies that sell cannabis or are connected to the industry made it into the top 100 list of Millennial investments as well. As state-level legalization of cannabis spreads throughout the U.S., more investors and businesses are counting on the industry’s eventual legalization at the federal level.
For now, direct manufacturers and distributors that are publicly listed are limited to Canadian companies, since the drug is legal throughout the country. That includes two of the companies we tracked in Millennials’ portfolios: Canopy Growth Corporation, which produces and distributes cannabis products including oils, concentrates, and flower, and Aurora, which sells medical marijuana. Toronto-based Cronos Group, an investment firm focused on putting money to work in medical marijuana companies, came in at No. 77 in the top 100.
Why does it matter?
Millennials overtook Baby Boomers in recent years as the largest living generation. Their 75.4 million members are a key demographic for the financial industry, for two main reasons:
• First, they make up half the global workforce and are expected to account for 75 percent of workers in the United States by 2025. That means they are moving into their prime earning years, giving them more money to spend and invest.
• Second, over the next decade or so, they will be recipients of one of the largest transfers of wealth ever recorded. Millennials in North America will inherit more than $30 trillion by 2030, according to an Accenture report.
Opportunities for financial services providers
For money management or financial advisory firms interested in working with millennials, our findings suggest several opportunities:
• Use Millennials’ interest in disruptive companies as an opening to educate them on investing basics. Give them context so they can better understand how outliers or industry challengers may fit into their portfolios.
• Educate these clients that investing for the long haul includes asset allocation and diversification strategies, not just picking a hot IPO.
• Adapt investment strategies that provide exposure to promising startups, including those with disruptive potential, to ensure Millennials’ interests and motivations are being addressed in their investments.
For more details about our proprietary data, the full findings and what they mean for financial services providers, download the full report here.
