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Retail investors are buying up UK and technology stocks and funds in an effort to fill their remaining Isa allowances, benefit from seemingly undervalued domestic investments and cash in on the artificial intelligence boom.
The City of London Investment Trust, which invests primarily in London-listed companies, such as BAE Systems, Relx and Shell, saw a 55 per cent rise in purchases between December 2023 and January 2024, despite purchases falling by 13 per cent between January 2023 to January 2024, according to data from investment platform Interactive Investor.
Meanwhile, investors have poured money into individual stocks they regard as undervalued. Purchases of struggling retailer JD Sports climbed 758 per cent between December and January, while buys of Lloyds Banking Group rose 113 per cent in the same period.
The bank’s share price has lost nearly 20 per cent of its value over the past year, but offers a 5.93 per cent dividend yield. Mining company Glencore, which also offers a generous dividend yield of 8.7 per cent, saw December to January growth of 51 per cent.
“The demand for UK dividend stocks has peaked in recent history as investors attempt to protect their portfolios against high levels of inflation,” said Myron Jobson, senior personal finance analyst at Interactive Investor. “Dividend stocks have also looked more attractive as savings rates and bond yields have dipped.”
Investors have until April 5 to fill their £20,000 Isa allowance, with 50 per cent of respondents to an Interactive Investor poll saying they had not used their full tax-free allowance and 25 per cent saying they had the full amount remaining. Chancellor Jeremy Hunt has floated the idea of adding a £5,000 allowance for investments into UK companies.
This upswing in UK market confidence comes following sluggish growth and a downbeat mood among domestic UK investors. The FTSE 100 index is down 4.5 per cent over the past year, compared with 22.96 per cent growth in the US S&P 500. Retail investors sold down around £12bn worth of London-listed shares from January to October 2023, according to the Investment Association.
However, the idea that these UK stocks are undervalued and due a rebound may be contributing to the recent surge in buying activity by retail investors. Market watchers caution it is too early to tell how enduring this trend will be.
AJ Bell, an investment platform, says its top 10 UK equity funds and trusts registered a 14 per cent increase in flows from January 1 to February 14.
“This is clearly a short time period and a small snapshot,” said Laith Khalaf, AJ Bell head of investment analysis. “It does show that some brave investors are willing to go against the directional trend and back the UK.”
UK retail investors are also buying technology stocks, with purchases of Tesla on Interactive Investor rising by 155 per cent month-on-month, compared with a fall of 5 per cent year-on-year.
Funds with heavy AI exposure, such as Polar Capital Technology Trust and Allianz Technology Trust, remain popular. Sales of these funds grew by 56 per cent and 58 per cent month-on-month respectively.
“Eager to gain exposure to the artificial intelligence theme, investors have chased these mega stocks to record highs,” said Lee Wild, head of equity strategy at Interactive Investor.
