Capita Registrars’ figures for August and September saw it add a net 2.6bn to its equity holdings. In the period between February and July, close to 10bn was withdrawn from shares. The market this autumn has been remarkably robust. Even so, the thought of all those private investors switching into equities starts alarm bells ringing.
Let us never forget that markets are highest when most people are buying and at their lowest when there is a preponderance of sellers. You cannot blame that on private investors alone. The same report divulged that private investors accounted for just 11.7 per cent of the value of the London stockmarket. The basis for calculating this sort of data has changed over time but I recall that only 10 per cent of the market was owned by private investors as 1999 drew to a close.
The reason that this figure sticks in my mind is that I once latched on to a statistic put out by the Stock Exchange declaring that, in 1963, nearly 60 per cent of shares were owned by private investors. Perhaps even more interestingly, there were not very many of them. An annual survey – named, as I recall, the quality of markets survey – published a regular update on who owned corporate Britain. I used to read the findings avidly.
Over the 40-plus years since I joined the City the number of private investors has grown enormously, yet the degree to which they own listed companies directly has fallen to a fraction of what used to be the case. The main driver has been the massive growth in pension funds as owners of shares. In 1963, they were only just beginning to get their toes wet in equities. Bonds and property were the watchword until the likes of George Ross-Goobey came along in the 1950s to preach the gospel that, for long-term liabilities, like pension funds, you needed the match of long-term assets, like equities.
By the end of the 1990s, it was not unusual to find a pension fund holding more than 80 per cent of its assets in shares. But then along came the new millennium bear market, FRS 17 and all manner of other pressures to demand a rethink of investment strategy.
I do not know the extent to which pension funds have divested themselves of equities over the past six or so years but the demands they will have faced suggest that an increase of the order suggested by the Capita survey is probably correct.
In the end, though, it is intermediation that has made the big difference. The other side of the growing professionalism of the investment management market is that the private investor increasingly seeks to shelter behind some form of institutional service rather than venture direct into a market where they feel disadvantaged by the power of the big operators. Be it a portfolio management service operated by one of the wealth management companies, multi-manager or simply holding investment funds, between most private investors and the market sits a person whose sole raison d’etre is to make best use of the funds at his or her disposal.
This month, the Christmas fairy looks likely to be siding with those people who we are increasingly trusting to look after our money. For reasons that remain obscure, December is usually a good month for investors. I favour the book-balancing argument – given that most institutional funds operate to a calendar year-end, but with luck we will see markets finish the month higher than when we started. It might even encourage more private investors to venture into the market.
Brian Tora is principal of The Tora Partnership.