Retail investors in buying mood despite downturn

In a switch from the downturn of 2000, retail investors have actually increased their trading volume, a panel of analysts told participants at the annual meeting of the Financial Industry Regulatory Authority Inc. in Boston. Finra is based in that city and New York. "Retail volume increased in March and April, and is increasing in May so far," said Richard Repetto, principal at Sandler O'Neill & Partners LP of New York. This behavior differs markedly from 2000, when retail trading dropped 35% to 40% for an entire year after the technology bubble burst, he said. This year, the investments of choice are ETFs in general and leveraged ETFs in particular, Mr. Repetto said. Leveraged ETFs are sophisticated instruments for seasoned, trader-type investors, said Eric Jacobson, senior fund analyst at Chicago-based fund tracker Morningstar Inc. "There actually should be a prescription that goes with it that says, 'Use only as directed,'" Mr. Repetto said. Principal-protected mutual funds are also becoming popular, said Allen Ferrell, Harvard Greenfield Professor of Securities Law at Harvard Law School in Cambridge, Mass. "But these products promise to return the amount invested over a 3-, 5- or 7-year time period in nominal terms,” he said. "Particularly in an environment where inflation is possible, what is the value of that guarantee?" Another source of higher trading volume may be so-called black-box trading firms, which give investors an opportunity to trade electronically based on proprietary algorithms, Mr. Repetto said. Separately, he noted that money market fund managers are struggling to stay in the black because of the low-interest-rate environment. "Many fund companies are consolidating money market portfolios or getting out of the business entirely," Mr. Jacobson said.