Private investor activity hots up ahead of Christmas

Private investors traded more actively than at any time in 2006 during October and November, according to Capita Registrars.

They both bought and sold in enthusiastic two-way trade, in contrast to the first half of the year when they sold all the way. In October and November they turned over £10.2bn of stock, up from a low of £1bn in April and May. In the last six months, they have traded one eighth of their portfolios (12.3%), compared to just one fiftieth (2%) in the preceding four months.

On a net basis they sold a net £1.5bn of stock, equivalent to 0.7% of their holdings during October and November, having added £2.6bn to their portfolios in August and September. Since the end of January, private investors have a sold a net £8.8bn. At the end of November, private investors owned £203bn of equities, 11.4% of the market, and equivalent to £3,459 per capita.

John Roundhill, Director of Capita Registrars commented: “The first half of 2006 saw straight selling on low volumes, but the picture is now much more complex. As the year has progressed, private investors have increasingly been trading both ways.

“This in large part reflects the massive increase in merger and acquisition activity this year - investors selling their shares to bidders are then reinvesting the proceeds. However the increased buzz in the stock market also seems to be stirring investors to review their holdings more actively.

“Even though the net buying of equities we saw in August and September has not been repeated, the £1.5bn of net selling in October and November is modest in the context of such busy two way trading.

“2006 has seen a dramatic slowdown in consumer borrowing and it seems that investors are dipping into their equity holdings ahead of Christmas, rather than loading up their credit cards.”

Did private investors make the right decisions? No.

In August and September private investors bought a net £2.6bn of equities. Overall this proved to be a good decision. The FTSE 350 increased in value by 1.5% over October and November, or £26bn. However, they picked the wrong sectors.

Healthcare was the top buy in September and November, yet the healthcare sector had a very poor two months, its value falling £10bn over the period. They did better in the other four sectors they bought; oil, gas & basic materials and consumer goods outperformed while the others were in line with the index.

Private investors were more successful with their August and September top sell, the consumer services sector. These stocks underperformed the market in October and November. However, again they did not get it all right, as the IT and the industrials sectors outperformed in the period, even though private investors had been selling them in August and September.

Some regions did better than others – the Channel Islands, the North, Yorkshire, Northern Ireland and Inner London were the heaviest net buyers and will have enjoyed the rising market. The East Midlands alone saw net selling.

John Roundhill commented: “Although they did well to buy in ahead of a rising market, especially in certain regions, overall private investors were not so good at picking their sectors. They got it right in three out of eight sectors and wrong in three. But unfortunately, the sectors they picked incorrectly went more strongly against them.
Of course private investors tend to take a long-term view when buying shares, so looking only at the immediate results will not give the full picture.”

Sector Activity in October & November

Financials saw the heaviest selling, by dint of their large size in the index. Investors reduced their holdings by £2.4bn. They sold consumer services heavily again, this time by £1.9bn, while they added £2bn to consumer goods stocks.

To understand the underlying interest investors have in sectors, it is important to adjust for their relative sizes. On this basis, financials actually saw less selling than the average. Consumer services (which include retail and leisure stocks) was the least popular sector while healthcare, for the second month running was most highly favoured. Consumer goods (including food and drink manufacturers) were a popular number two.

John Roundhill added: “Early tales of Christmas woe on the high street have spurred investors to reduce their consumer services holdings, but they don’t expect Britain to starve over Christmas. Heavy buying of food and drinks stocks suggests investors expect the party to go on regardless. The popularity of healthcare may anticipate the New Year hangover.”

Regional Patterns

The North West remains one of the most cautious regions. The second most reluctant to buy in August and September, investors in the region sold aggressively in October and November. Their average holding fell by 5.7% or £116, compared to a national average of £31 or less than 1%. Yorkshire, the most aggressive summer buyers, saw their holdings fall £158 this time, 5.6% of their holdings. People in East Anglia, London and Northern Ireland bucked the trend, as their holdings rose.