AIMProspector Interview Research Tree CEO
Executive Insight
Private investors are an important segment of the UK equities market. We are generally longer term holders and therefore good sources of capital for quoted companies. Our importance will continue to increase as government reforms to pensions and ISAs take effect. As we take on more responsibility for our savings, we need the right tools to invest effectively.
Private investors are bigger owners of UK plc than UK institutions
Ownership of listed UK shares by retail investors has ranged between a material 11% and 12% over the last 5 years, far higher than the share held by the UK institutions, making them the largest investor group other than foreign investors. This shows the importance to UK plc of the retail investor base and it is a fact that is often not appreciated.
Furthermore, despite perceptions, private investors are longer term sources of capital for companies according to Capita Asset Services:
“On average, retail shareholders hang on to a share for five years, much longer than the two year holding period of institutional and foreign investors."
Isa and pension reforms will maintain trend of growing retail ownership
In 2013, George Osborne made it possible to pick AIM shares in your ISA. According to research by TD Direct in late 2014, in that year alone this led to a 76% increase in AIM share ownership by private investors on its platform.
Trading AIM shares no longer incur stamp duty. ISA allowances have increased from £7k pa before 2010 to £15k today and will be £20k from next year.
All of this has driven and will continue to drive, capital into equities as private investors take advantage of the tax benefits.
Quantitative easing has kept short, medium and long-term interest rates so low that annuities offer deeply unattractive yields. Fortunately, pension/SIPP reforms in 2014/15 have given greater freedom to individuals. Rather than choosing annuities and locking in awful yields based on current fixed income products, people can now take more control of their savings. This has resulted in capital flowing to asset classes with far more attractive yield potential, e.g. equities, where decent returns on investment can still be made. This trend will continue.
Greater active management will make retail investors increasingly important
As individuals take more control of their savings there will, in our view, be a continuing rise in the number of private investors managing their own assets:
At the small-to-mid-cap end of the market, retail investors often comprise the lion’s share of the liquidity and share register of quoted companies.
Demand for the tools necessary to manage your own investments has risen strongly (eg Research Tree’s professional equity research platform, Stockopedia’s screening tools and blogs, and Investors Chronicle’s financial journalism).
Share societies and forums set up to educate and protect private investors (like ShareSoc and BlueShare) have seen impressive growth in members in recent years.
There are numerous examples of private investors building up material equity stakes, some (such as this example) to the point where they must be declared.
Many of these investors are sophisticated, and many are high net worth. Although there is admittedly a lot of white noise on the internet forums, there is also a decent amount of rigorous, high-quality dialogue and written research. Smart quoted companies are looking for ways to better engage with this growing set of investors and ensuring that they are better informed. This can only help liquidity, price volatility, market efficiency and therefore fair valuations.
