Private investors continued to buy enthusiastically into the equity rally in the six months to the end of May, according to the latest Private Investor Watch from Capita Registrars.
Over that period, they added a net GBP2.3bn to their holdings, bringing their total shareholdings at the end of May to GBP222.2bn, equivalent to 11 per cent of UK shares by value.
Since the bull market began in March 2009, they have added GBP6.1bn to their equity holdings, GBP3.6bn of that in the last twelve months alone. Over the 17 quarters since March 2009, they have added to their holdings in 12 of them, occasionally pausing for breath or taking profits.
Between December and May, investors traded a total of GBP45bn in shares, the busiest trading period in two years.
However, they did not anticipate the market dip that began at the beginning of June, and failed to take profits after the strong run up in share prices this year. Instead they continued to buy, right up until the end of May. By 18 June, they had lost GBP11.5bn as their holdings fell in value to GBP210.7bn.
Rising share prices certainly attract new money, but the vast sums being paid out by UK firms in dividends provided have also proved an important lure, as investors have struggled to find income anywhere else. In 2012, they earned GBP9.0bn in dividends, according to the Capita Dividend Monitor, equivalent to GBP24.7m per day.
But income will be harder to come by this year. Indeed, in the first quarter, dividend income to private shareholders fell GBP587m year on year to GBP1.6bn. For the full year, Capita expects private investors to earn GBP8.8bn, as headline dividend growth slows sharply owing principally to the end of big special dividends, and because private investors own a slightly smaller share of the market than a year ago (now 11 per cent, down from 11.3 per cent). Mining firms in particular had favoured these payouts, but are now struggling with higher costs and lower prices for their production, meaning profits cannot support the level of dividends seen of late. Underlying dividends for the wider market should continue to grow, but at a slower pace.
Between December and May, investors continued to show a preference for cyclical shares, those more likely to benefit from an upturn in economic activity. This preference has extended for almost two and half years now, reversing a previous two year focus on defensive shares, considered safer in risky economic times.
Justin Cooper, chief executive of Capita Registrars, says: “Private investors have enjoyed a very good 12 months in the stock market, scooping capital gains and healthy dividend payments. They have traded shrewdly over the last few years, and have often timed the market well. But this year they failed to observe the old market cliché warning them to ‘sell in May and go away’. It’s cost them dearly in recent weeks. Investors have had a stark reminder that equities are not a one-way bet. With growing gloom over global growth, despite better news in the UK, and the likelihood of a winding down of monetary support, the outlook for asset prices is highly uncertain.”