The switch seen since the financial crisis has pushed retail shareholdings up to record levels over the past three and a half years as investors are being spurred on by the potential of far higher returns from such stocks. In May, according to Capita Registrars, private investors held £237bn in listed UK companies, the highest since November 2007.
This increase, says Charles Cryer, Capita Registrars’ chief executive, says this reflects the longest unbroken period for the net buying of equities since his organisation started to record the figures in 2006.
“By the end of May,” he continued, “private investor shareholdings were 11.7% of the UK market, far ahead of the all-time low of 10.9% reached exactly a year ago.”
By comparison, the more recent data shows a high of 20% in 1990 having declined steadily since a level of 54% in 1963.
In the past three months, investors’ appetite has been with cyclical sectors to the tune of £905m, with the biggest purchases being made in commodities. At the same time, they sold £106m of defensives, with utilities seeing the biggest outflows, even as talk of defensive allocations started to come to the fore.
Cryer concluded: ““The latest quarter has shown a big shift in risk appetite. This is only the second time in three years private investors have sold defensive shares. The shift is quite a brave step to take, but private investors have shown they trade astutely on the whole.”
He went on to advise corporate advisers to look at sensibly-priced IPOs that tap into such strong retail demand…
A recent report from The World Bank pointed out: “The global financial crisis is no longer the major force dictating the pace of economic activity in developing countries. Most developing countries have, or are close to having, regained full-capacity activity levels. As a result, country-specific productivity and sectoral factors are now the dominant factors supporting growth”.
Retail investors tend to lag the market, hence they tend to sell at the bottom and buy at the top, so are professional investors still buying cyclicals?
Cyclicals do well, as Julie Dean, fund manager, UK equity, at Cazenove Capital, told delegates at Portfolio Adviser Expert Investor, Edinburgh: “Given the current state of the business cycle, cyclical stocks will again do well as they tend to outperform during periods of recovery (as defensives do in a downturn).”
And the conclusion? It looks like, for the time being at least, and in UK markets in particular, cyclical stocks may not be such a bad thing.
