Investors hold nerve but only just

Despite recent stock market turmoil, active investors are holding their nerve – but only just, according to research from the Association of Investment Companies’ (AIC).

The AIC’s latest investor confidence index found that 38% of active investors say a stockmarket crash poses the single biggest threat to their finances. Whilst this is only a slight change since February (36%), this remains the most commonly cited worry. Meanwhile fewer active investors plan to increase their investments in the next few months, and are much more inclined to sit tight.

In stark contrast, the biggest causes for concern for the general public’s finances were focused closer to home. People’s fears increasingly centred on losing their job (26% compared to 17% six months ago) and further interest rate rises (24% compared to 14%).

Changing investments

Fewer active investors plan to increase their investments in the next few months – down from 43% in February to just a third (33%) now. The number of active investors planning to keep their stock market investments the same has increased by 10% in the past six months, with more than a third (34%) saying that this is because the stock market is simply too uncertain at the moment.

Of the 16% that said they planned to decrease their investments this was because the economy looks fragile (35%), and the stock market is still too uncertain (31%). However, of the active investors planning on increasing their investments, 32% said this was because they had more money available to do so. A quarter (24%) said it was because they were feeling more optimistic about the outlook for the stock market.

The general public is much more cautious at the moment – with just 12% of those that have investments planning to increase their holdings. The vast majority – 77% - will not be making any changes just yet, again, the main reason being the uncertain outlook of the stock market based on the options given.

Oil back in vogue

Active investors may be more cautious, but they have fallen back in love with Resources (including oil). Resources is the sector most commonly cited by active investors as the most attractive sector at present (23%) and has now surpassed blue chips, coming a close second (19%). This is the first time since February 2006 that Resources (including oil) was most widely tipped as the most attractive sector (21%). The UK remains the geographical area of choice for nearly three quarters of active investors (71%).

Green issues a key consideration

‘Green’ investing is still very much on the agenda for nearly six in 10 (59%) of active investors. Almost half (48%) said global warming might impact some of their investment decisions and 11% said it would definitely affect their investment decisions. These figures are largely comparable with six months ago, demonstrating that global warming is an issue that looks set to stay on the agenda for the long run.

Property versus equities

The majority of active investors questioned in September thought that equities would produce better returns than the UK housing market (54%), up by 11% when questioned in February (43%).

The research also shows that the UK’s love affair with property is rapidly ending, with confidence in returns from bricks and mortar falling yet again – just 7% of active investors backed the housing market in September, down from 12% in February. Only a quarter (27%) of the general public think property alone (out of the stock and property markets) is the best bet now, compared to 31% in February.

Annabel Brodie-Smith, Communications Director, AIC, commented: “Given the credit crunch and the recent market volatility we might have expected investor confidence to plummet, but active investors and the public have held their nerve. Active investors are back in love with resources at a time when oil prices are at record levels. However, active investors are more cautious about markets going forward with a stock market crash being their biggest financial worry. For the public five interest rate rises have taken their toll and they are most concerned about losing their job and further rate rises.

“It is important for investors to take a long-term approach to investing and over the long-term equities usually outperform bank and building society accounts. Investment companies allow investors to spread their investment risk, have independent boards to look after shareholder interests and on average have low charges. If investors are in any doubt about markets going forward they should consider investing monthly in an investment company savings scheme or ISA which gives a lower risk profile than lump sum investment and are available from as little as £25 a month.”