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OPINION

Private investors are dumping shares

Private investors are dumping shares
January 14, 2015
Private investors are dumping shares

What are we to make of such dramatic statistics? My first instinct was disbelief. After all, the stock market only fell 10 per cent in September and October, and promptly bounced back. Surely if private investors - who own about 11 per cent of UK stocks, according to the Office for National Statistics - started selling on such a scale, markets would have witnessed a more extreme correction and higher volatility.

Indeed, it is hard to reconcile the Capita survey with other data or reports from retail stockbrokers. Flows into open-ended funds investing in UK equities remained positive, with just under £500m invested in September and October (the figures for November are not yet available). And I could not find a single stockbroker who could corroborate the Capita data.

Richard Stone, chief executive of the Share Centre (SHRE), claims he saw no evidence of investors selling up in the autumn. Three-fifths of all trades through the Share Centre were buys in the final quarter of 2014. Admittedly, this isn't quite the same timeframe as that covered by the Capita report, and sell trades could have been larger than buys. But it's odd that Share Centre's experience was the opposite of Capita's. Mr Stone also says trading volumes, far from picking up suddenly, tailed off. "You'd normally expect trading to bounce back after the summer, but it didn't really this year. Volumes have been subdued."

Hargreaves Lansdown (HL.) is also suspicious of the Capita data. The HL Investors Confidence Index stood at 102 for December, down from 118 at the beginning of 2014 but well above the 61 level recorded as recently as May 2012. Laith Khalaf, a senior analyst at the FTSE 100 investment group, sees some evidence that the correction in September and October actually encouraged investors to buy shares.

Yet the statistical underpinnings of the Capita data seem pretty robust. The outsourcer claims to manage the share registers of a "large proportion of listed companies". The survey is based on a sample of these registers amounting to 17.5 per cent of the market capitalisation of the FTSE All-Share - so a very large sample. This sample is then mix-adjusted to account for sector imbalances. The company also makes clear that it trawls through the registers to work out which shareholders are individuals owning stocks directly and which nominee accounts comprise indirect private investor holdings.

The latest Private Investor Watch may simply be a reminder that statistics are slippery and must always be scrutinised. However, if we take its findings at face value, they point not just to a collapse in sentiment, but also to a strongly contrarian streak among private investors. As I wrote last week, economists are very upbeat about the UK's prospects. The asset allocation experts that typically air their views at this time of year also remain mostly bullish on equities, as the 'least worst' option in a low-rate world - which is also my view. If private investors are selling, they are at odds with the consensus.

Interestingly, individual stock choices also look contrarian. The most sold FTSE 100 stock on the Hargreaves Lansdown platform between September and November was Lloyds Banking Group (LLOY), which more City analysts recommend buying than selling. The most bought stock, meanwhile, was Tesco (TSCO), which more analysts recommend selling than buying - a position they may be scrambling to change after last week's better-than-feared Christmas update.

It used to be thought private investors were gullible bandwagoneers who bought high and sold low. That caricature may have been truer during the 1980s privatisations and the dotcom boom than it is now, after the market shake-outs of 2001-03 and 2008-09. If the sheep are concentrated anywhere, it's in the City.