British retail investors appear to be keeping their cool in the face of searing stock market volatility and wildly swinging corporate share prices triggered by domestic and global political uncertainty.
Investment platform eToro’s latest quarterly temperature check of 10,000 investors suggests only one in 20 has sold while 95% of its clients, many of whom tend to be highly committed investors , remained flat, with some even investing more in an attempt to buy the dip’.
Stock markets have suffered considerable volatility in 2022, with Russia’s invasion of Ukraine wiping £77bn off the FTSE 100 in a single day – the biggest one-day drop since June 2020 amid the pandemic.
Energy shortages, trade embargoes and severely disrupted international supply chains have exacerbated post-pandemic economic hardship, pushing UK inflation above 9% and fueling fears the country could be on the verge of a recession.
Interactive Investor’s latest Private Investor Performance Index as of June 30, 2022 showed that private investors using its platform are down 11% in the first half of 2022, while the mixed investment equity sector is down 40-85% of the Investment Association is down 10.8%
The losses echo falls in the first half of 2020, when the average customer II was down 8.1%, before ending the year in positive territory.
Possibility to buy
Still, there is evidence that UK retail investors seized on the stock market falls as a buying opportunity.
eToro’s investor base has stacked up in commodities, with the number of clients holding the asset class increasing by 40% since the end of March this year.
AJ Bell’s head of investment analysis, Laith Khalaf, said he had also seen surprising confidence among UK investors over the past six months.
“The most notable thing about the behavior of DIY investors over the past six months is their willingness to buy the market downside using trailing funds,” he said.
“Investors have piled into passive funds focused on US and global equity markets, areas that have seen some of the biggest declines in 2022.
“Eight of the 10 most popular funds bought on the AJ Bell Youinvest platform in the first half of the year are passive offers.”
eToro’s research suggested that one in three UK investors plan to increase the amount they invest over the coming year in an attempt to hedge against inflation – their main concern.
Time spent in the market
Ben Laidler, eToro’s global market strategist, said: “The golden rule of investing is that time in markets outweighs market timing, so it’s encouraging to see investors, especially those who are relatively new to investing, refrain from making impulsive decisions when things have gotten choppy.
Analysis this week by wealth manager Brewin Dolphin has revealed how a stark difference in trying to time the market by buying low and selling high would have made the value of £10,000 invested in the FTSE All Share on 1 May 1989.
“If you had kept your £10,000 invested until April this year, it would have grown to £140,287 assuming dividends were reinvested and before charges,” said Rob Burgeman, chief investment officer at the manager of inheritance.
“However, if you tried to buy low, sell high and miss the best 30 days in the market, your investment would have risen to just £33,872.”
Burgeman warned, “In an ideal world, you would buy the dips; in reality, there is no way to really know if the stock market has bottomed out and when the recovery will occur. The buy low, sell high practice is something only professional investors should try.
“Investors who keep their money out of the market are also at the mercy of inflation, which recently hit a 40-year high of 9.1%. its purchasing power. “
Rather than trying to time the market, the consensus is that it’s best to stay focused on your long-term goals and the quality of your investments.
“While recessions are disconcerting, it remains true that investing offers the potential for higher returns than cash over the long term,” Burgeman added.
How to invest in a recession
The best way to mitigate the impact of stock market falls is to spread your money across a range of asset classes and sectors.
Different asset classes and sectors tend to behave differently from each other in a range of market conditions, which can help smooth portfolio performance over the long term.
eToro client habits suggest investors have largely shifted to defensive sectors this year, with purchases of energy stocks up 18%, utilities up 16% and purchases of tech stocks “New Defensives” up 16%.
Richard Hunter, head of markets at II, said private investors continue to seek income and blue-chip, dividend-paying names such as Lloyds, Shell and BP remain popular.
“Many investors choose to steer clear of active strategies in favor of passives,” Hunter said.
“The Vanguard LifeStrategy range was in the top 10 most held investments by value across all areas except for clients over 65. Active and passive strategies are the ultimate pick and mix and there’s room for both in a wallet.”