Private investors read market ahead of City professionals

Private investors positioned themselves well for the correction in the UK stock markets that took place in the second half of July and beginning of August, according to Capita Group Plc.

In the eight months to the end of July, they sold a net £5.9bn of their equity holdings, reducing their share of UK Plc from 12.15% to 11.96%. The complexion of their holdings also changed in preparation. They sold £8bn of their cyclical shares (such as financial, industrial and energy stocks) and bought £2.1bn of defensive stocks (eg utilities and consumer goods such as tobacco and beverages) whose profits and share prices tend to be less affected by bad economic news and financial market disturbances.

John Roundhill, Director of Capita Registrars commented: “For several months our research has shown a steady sell trend by private investors and how they have been refocusing their portfolios on defensive stocks. We pin-pointed in June that their nervousness suggested a correction was imminent. Their strategy has proved itself very sound. When the turmoil began to hit in the middle of July, private investors were ready for it.

Our figures demonstrate that the conventional wisdom – that private investors sell at the bottom and buy at the top – is simply not true. Although private investor activity alone will not drive the market in any particular direction, their behaviour clearly should not be ignored.”