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The Transactions of 10,000 Accounts Informing a New, Addepar-Powered Investor Sentiment Tool

The software company is leveraging transaction data on its $2 trillion platform to create the free-to-use Addepar Investor Sentiment Index.

Since Addepar was founded more than a decade ago, the software company’s goal has been not only to help institutions, family offices, and RIAs understand how their investment portfolios are doing, but also to leverage their collective data. Now, with over 400 clients and a platform with $2 trillion, the company is launching its first public tool showing when exactly the wealthiest private investors buy and sell stocks.

On Thursday, the company unveiled the Addepar Investor Sentiment Index, which uses anonymized transaction activity of more than 10,000 accounts with at least $10 million in assets to show when those investors are buying or selling equities. A public version of the index will be published each month and Addepar clients will have access to a weekly version.

“The wealthiest tier of investors is often referred to as the ‘patient capital’ in the market. These investors tend to make decisions based on longer time-horizons, with fewer restrictions on how they invest. They also have access to the highest caliber of investment resources, making them a group worthy of all investors’ attention,” according to Addepar.

The index is Addepar’s first proprietary product like it and the company says it is different from other measurements of investor sentiment, which are highly sought after by those trying to gauge the “animal spirits” impacting markets.

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“A reliable measure of risk sentiment among investors is a highly coveted, but elusive, resource. Many traders and researchers rely on indicators drawn from investor surveys, aggregated portfolios, and option markets. But survey responses may not map to actual behavior, and aggregated market statistics — such as volumes and derivative prices — can reflect market technicals and other distortions,” a white paper about the index says.

Unlike surveys (such as the popular UBS Global Wealth Management Investor Sentiment Survey) or fund flows reports (like those by Morningstar, Lipper, and others), actual transactions best reflect investor sentiment, according to Addepar. There’s no opportunity for human manipulation to muddy data. The trades made were the trades made.

“What people say and what they do aren’t always the same thing,” Alastair Cairns, head of Insights at Addepar, said about investor surveys. However, Cairns acknowledged one advantage of surveys: the index is “contemporaneous but it’s not forward-looking.”

Among other findings from the index this year, the wealthiest investors purchased stocks when the market was down and sold as it rallied back to historic highs. “Investor sentiment and market performance is negatively correlated contemporaneously: [high-net worth and ultra-high-net worth] investors tend to be net sellers of stocks in months when markets rally,” the white paper for the index points out.

There are no plans for the index itself to generate revenue for the company, Addepar CEO Eric Poirier told RIA Intel. It is a perk clients wanted. The concept of the index has been coming up in conversations between Addepar and its users for a long time, he said.

Addepar expects to create similar index products for other asset classes but it wanted to launch one focused on equities first, to gauge the reaction to it.

“How exactly this takes shape over time, honestly, we don’t know but we’re curious to see ourselves,” Poirier said.

The value added by the new index, and any potential forthcoming ones, might also entice more RIAs to use Addepar. The company says it works with RIAs of all sizes, but an increasing number of the largest ones use the software. Three years ago, less than 5% of the firms on the Barron’s Top 100 RIA list were clients of Addepar. Today, nearly 20% are clients and the company is "in active dialogue with an additional 15%," a spokesperson told RIA Intel.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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