Surging interest in financial technology and climate themes helped shape trading in the heavyweight mining and financial services industries over 2021 as younger investors flocked to the market.

Banks and miners may dominate the Australian share indices, but those investing via AUSIEX also favoured a more modern twist on finance - fintech - in their trading during 2021.

Buy now pay later stocks were heavily favoured by investors, and number two player Zip Co (ASX: Z1P) took the record for the most weeks as the top traded stock on AUSIEX. Zip held this position for 16 weeks in 2021 and spent all but 32 weeks in the top five stocks on AUSIEX between January 1^st and December 31^st. It was the top traded stock for 11 weeks out of 15 between the end of January and early May before giving up ground to Bank stocks.

John Rose, Senior Manager, Business Intelligence at AUSIEX, said trading figures for 2021, which include shares, exchange-traded funds (ETFs), exchange-traded managed funds (ETMFs), listed investment companies (LICs) and listed investment trusts (LITs) - highlighted the enduring appeal of the two heavyweight Australian sectors.

But the trading activity was overlaid with the big themes affecting those sectors; the growth of financial technology (fintech); surging interest in climate-focused investment; as well as the growing significance of Millennial and Generation Z investors and their increasingly diverse investment choices from older generations.

Zip’s stretch of number one postings eclipsed the total for all the banks for the year, with Westpac (ASX: WBC) the next most enduring at thirteen weeks, followed by iron ore giants BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) at eleven and seven weeks respectively. Commonwealth Bank (ASX: CBA), Australia’s biggest and highest priced bank, spent three weeks at number one later in the year as concerns over tech stock valuations emerged.

Of the Top 5 Traded stocks, Westpac appeared the most weeks in the Top 5 with 42 Weeks – just edging BHP which featured in 41 weeks. Only six stocks (WBC, BHP, FMG, Z1P, CBA and APT) spent 10 or more weeks in the Top 5 as 42 Individual stocks scored a Top 5 position during 2021.

Younger investors trade businesses they know

John Rose said the frequency of Zip and to a lesser extent Afterpay (ASX: ATP) in the top stocks indicates that it was Gen Z and Millennial investors trading the stock.

“You trade what you know; what is tangible, and we definitely saw Gen Z and Millennial investors in our Direct Retail Segment buy into Zip because it’s something they interact with”, Rose says. “When you go shopping, online or in person, you see vendors accepting Zip and Afterpay primarily as forms of payment. So younger investors see it as a business model that works. Zip recently announced it has almost 10m customers. That’s 10m people exposed to their brand”. A similar driver may have been behind the rise of trading in the gig economy platform Airtasker (ASX: ART) to the top spot when it floated in late March.

Zip’s popularity over its larger and older rival Afterpay could also be explained among new investors by the price difference, with Afterpay trading above $100 a share for most of the year while Zip was between $5 and $15 a share providing a lower price barrier for entry.

While Zip dominated the weekly rankings, it was the materials sector – headed by BHP and number 3 iron ore miner Fortescue – which led the way in total number of trades for the year.

Materials stocks were in the top five trades every week and the number of buys and sells was more than double the next biggest sector, financials (excluding BNPL). The two heavyweight sectors traded places in investor favour through the year, with materials taking the lead after the S&P ASX 200 rose to its record high of 7632 points on Friday August 13. Interestingly, only two major market sectors – Financials (ex BNPL) and Telecommunications were the only major market sectors to see net selling over the year on AUSIEX, Telstra’s (ASX:TLS) stellar returns in 2021 gave investors an opportunity to cash out.

Rising climate concerns influence mining heavyweights

Iron ore prices above $US200 a tonne in the first half of the year were not the only draw to the materials sector. Picking up the growing interest in environmental themes, Fortescue’s efforts to diversify its’ Iron Ore revenues  and become a major player in renewable energy, especially green hydrogen caused spikes in interest in the company in the second half of the year. BHP, meanwhile, moved decisively towards ending its dual-listed structure and announced plans to vend its oil and gas interest to Woodside Petroleum (ASX: WPL) as it continues a greening of its resource portfolio.

While direct shares remained the most popular avenue to the market, AUSIEX, as one of Australia’s biggest agency brokers for exchange-traded products (ETPs), witnessed continuing growth in the number and diversity of ETFs traded.

Themed ETFs catch investor interest

The top traded ETFs continued to be dominated by the broader index funds, with the Vanguard Australia Shares ETF (ASX: VAS) attracting nearly double the number of trades of the next most popular ETF, the BetaShares NASDAQ 100 ETF (ASX: NDQ), where Australian investors tracked the continued rise of giant US tech stocks such as Apple, Alphabet, Meta and Amazon.

Rose says the growing popularity of ETFs reflects the influx of younger, less established investors who are looking for broad market or sector exposure but initially don’t have the funds to build the portfolio themselves using direct shares. Gen Z Investors, in particular, were Net Buyers of stock and were heavy buyers (86%) into VAS. More established investors have also been attracted to the sector by the growth of thematic ETFs built around megatrends such as financial technology or climate change. Allowing easy access to a diversified investment.

Vanguard dominated the top 10 listings, with the Vanguard Australian Property Sector index ETF (ASX: VAP) ranked third for total number of trades, ahead of the fourth ranked Vanguard MSCI Index International Shares ETF (ASX: VGS), the sixth-placed Vanguard US Total Market Shares Index ETF (ASX: VTS) and the Vanguard All-World ex-US Shares Index ETF (ASX: VEU) at ninth.

But the growing popularity of smart beta and thematic ETFs was highlighted with the placing of the VanEck MSCI International Quality ETF (ASX: QUAL) and the BetaShares Asia Technology Tigers ETF (ASX: ASIA) at seventh and eighth.

In a big year for thematic launches, BetaShares Crypto Innovators ETF (ASX: CRYP) became the biggest fund launch of the year measured by traded value on AUSIEX when it listed in October. From a standing start it was the 36^th most traded ETF on AUSIEX for the year after just two months on the boards.

Crypto currency and technology-themed ETFs were among the most popular thematic funds for the year with BetaShares also listing the Cloud Computing ETF (ASX: CLDD) while ETF Securities launched the Semiconductor ETF (ASX: SEMI) and the Fintech and Blockchain ETF (ASX: FTEC) against the Cosmos Global Digital Miners Access ETF (ASX: DIGA).

Environmental Social and Governance (ESG) investing was the clear standout theme, however, with the BetaShares Climate Change Innovation ETF (ASX: ERTH) and the VanEck Global Clean Energy ETF (ASX: CLNE) the top two ETFs by traded value among the new fund launches of 2021. Both launched in the first quarter and saw a spike in trading activity around October as the COP 26 Climate Change Conference kicked off in Glasgow and world leaders made future climate commitments.

Search for yield drives interest in hybrids, private debt

Outside the fintech and climate themes, the BetaShares Australian Major Bank Hybrids Index ETF (ASX: BHYB) placed third by traded value, with investors seemingly attracted by the higher-yielding securities issued by the banks to support their capital structure. 2021 saw the largest number of new Hybrid Securities listed on the ASX since 2017 as all 5 major banks issued new Capital Notes.

Hybrids also featured in trading activity among ETMFs where the higher yields on offer from a fixed income-like product made the BetaShares Actively Managed Hybrids Fund (ASX: HBRD) the second most popular fund.

Leading activity in that segment was the BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) where returns are negatively correlated to the S&P ASX 200 Accumulation Index, suggesting investors wanted to hedge against a fall in equity prices as the Australian market reached record highs in 2021. BetaShares US Strong Bear Hedge Fund (ASX: BBUS) was the fourth most popular ETMF.

Trading in LICs was almost as popular as ETMFs, but with less exotic strategies behind them. The top three spots were taken by industry heavyweights Australian Foundation Investment Company (ASX: AFI), Argo Investments (ASX: ARG) and Wilson Asset Management’s WAM Capital Limited (ASX: WAM).

The heavyweight Magellan Global Fund (ASX: MGF) was the clear leader in trading orders for LITs, but in what appears to reflect its widely publicised performance issues, sell orders outnumbered buy orders by nearly two-to-one, making it one of the few securities to see sellers dominate over the year.

Reflecting growing interest in defensive, income-oriented investments, Metrics Master Income Trust (ASX: MXT) was the second most popular LIT. MXT invests in in the fast-growing market for private credit for companies and commercial property developers.

As markets reset amid expectations of rising official interest rates and the end of long-standing easy money policies, 2022 could be in for a lot more trading activity.