Private investors take profits as rally stalls

Private investors have increasingly been selling shares as the stock market rally slows, in order to take profits on holdings bought earlier in the year, according to the latest analysis of trades by 1.6m UK shareholders.

In October and November, individual investors sold a net £637m-worth of equities, more than treble the amount they pulled out of the market in August and September. Figures from
Capita Registrars, which records private shareholdings in more than 2,000 UK and Irish companies, show that this latest sell-off takes the total value of shares sold in the past five months to £900m.

In the eight months to July 2009, UK investors had been net buyers of equities, adding £2.5bn to their holdings. The bulk of this buying, £1.7bn, came between February and May, as the FTSE 100 bottomed out at its March 3 low of 3,512, rebounding 28 per cent in three months to reach 4,506.

But as the rally faltered in June, with the FTSE losing 4 per cent in a month, the trend reversed, and net sales of £52m were recorded in the two months to the end of July. Since then, in spite of a further 14 per cent rise in the index, private investors have continued to scale back their holdings. A further £199m-worth of shares were sold in the two months to the end of September and, with the market rally slowing to a 1.7 per cent rise in November, selling activity returned to levels last seen during the financial crisis of 2008.

However, Capita’s analysis suggests this is profit taking, rather than panic selling. “The market rally stumbled in the early autumn, justifying the decision of many investors to begin pulling money out of their holdings,” said operations director Michael Kempe. “Disappointment regarding the pace of the UK recovery and concerns over the sustainability of high share prices have driven shareholders to take some profits from the strong FTSE performance.”

Although private investors’ trading volumes hit their second highest level in a year and a half, at £1.2bn, they sold less in the past six months than in any of the previous sell-offs.

“This is not a rout,” said Kempe. “In fact, it’s the least concerted period of selling we have seen in recent years, so it may not last long. It is rare to have more than eight months of flows in one direction. By the end of January, things could look quite different.”

Further evidence that this is a “top-slicing” of profits comes from sector statistics. Of all the shares sold in September and November, 99 per cent were in cyclical sectors. Higher-yielding defensive shares were largely retained.

Investor appetite for riskier shares remains, though. Capita noted more interest in the housebuilding and financials sectors – and private client stockbrokers reported similar activity.

Barclays Stockbrokers said that its clients maintained a buy:sell ratio of 55:44 in the past two months – with sells outweighing buys on only five days – and continued to add holdings in banks, mining, oil and housebuilding companies. Xstrata, Gulf Keystone Petroleum and Taylor Wimpey ranked just below the UK banks in its clients’ top buys and sells. TD Waterhouse saw its buy:sell ratio fall to 50:50 in mid-November, though it recovered quickly. “Many who bought at the end of October may have been selling,” said investor centre manager James Daly.

Some investors appear to be moving out of shares and into derivatives to exploit short-term gains. Barclays said: “We saw the highest volumes of the year in contracts for difference and spread trading in the last week of November, driven by the Dubai debt story.”