Private Investor, public markets

Private Investor, public markets

700,000 retail investors

Participated in the Royal Mail share issue

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Private investor interest in the stock market is increasing but there is plenty of potential for further growth. London Stock Exchange Group is spearheading a range of initiatives to boost retail understanding and involvement as Heather Connon explains. 

When the government sold just over half its shares in Royal Mail, it attracted 700,000 retail investors, helping to make the issue one of the most over-subscribed since the heyday of privatisations in the 1980s. When AIM stocks were allowed into ISAs in August 2013, turnover of shares on the junior market jumped 74 per cent in the following month, an increase attributable in large part to a surge in demand from private investors.

These are just two of the signs that private investor interest in the stock market is buoyant – and the government is keen to encourage it further. AIM is expected to get a fresh fillip in April 2014 with removal of stamp duty from the purchase of shares in that market. Chancellor George Osborne has also said he plans to allow private investors to buy shares in Lloyds Banking Group when further tranches of the part-nationalised company are sold.

However, there is still plenty of scope for educating retail investors on the merits of equities. Research commissioned by London Stock Exchange Group (LSEG) in 2013 showed that almost half the people in the UK who have ISA investments and pensions do not know how their money is invested, while almost a quarter did not know the value of their investments.

“This clearly demonstrates that there scope for better education and awareness of both active and passive investors in the UK,” says Brian Schwieger, Head of Equities at LSEG. “And that better understanding should lead to more informed investor activity”.

Shares are, of course, a natural place for investors to put their cash as they offer a potential combination of growth from share price appreciation and income from dividends. Recently, these sort returns have been hard to find elsewhere, especially with interest rates at record lows.

London, as the heart of the world’s financial centre, offers particular attractions for equity investors: it has the most successful small company trading venue in Europe, AIM and offers investors internationally access to a large and vibrant range of small companies quoted on the Main Market. And it offers investors the chance to gain exposure to both UK and international economic growth, as many of its domestically quoted companies have extensive global trading interests.

Stimulating interest

London Stock Exchange’s annual investor show is just one of the initiatives undertaken by the Group to improve education and stimulate market participation. The largest such event in the UK,more than 4,000 investors and traders attended the show in October 2013, enjoying a wide variety of workshops, seminars and presentations from financial and industry experts. Topics covered ranged from investing for recovery to best execution via fusion analysis and Enterprise Investment Schemes. 

According to Schwieger, the aim of the show is to offer specific advice and information on the range of investment options available.

‘I was stopped regularly by participants and asked a host of questions. The standard of these questions was extremely high and often very specific on for example, the mechanics of dealing in end of day auctions. That indicates the real benefits of raising awareness and demonstrates investors’ appetite for information and advice,’ he says.

Among those making presentations at the show was Academy, an organisation run by LSEG, charged with sharing knowledge and expertise on financial markets.

Academy presentations - where, says Schwieger, there was standing room only – are part of a programme of courses aimed at helping market participants and other finance professionals to keep abreast of developments in financial markets and enhance the skills they need to function and compete.

Formed in 2009, Academy brings together the Training Services division of London Stock Exchange and Academy of Borsa Italia. It operates from campuses in London and Milan, with a mission to ‘interpret the evolution of the international financial markets by sharing views and expertise with market practitioners’. Aimed at both individuals and companies, its courses range from an introduction to equity markets to more specialist areas such as corporate governance and financial crime risk management. It also offers one-to-one coaching and bespoke training courses to suit individual needs.

LSEG is also spreading the equity and derivatives gospel through Private Investor, the quarterly magazine launched in the spring of 2012 in conjunction with Prospect. It already has a regular readership of 40,000 and features articles on a wide range of investment themes and topics.
Room for improvement

While retail interest in equities is undoubtedly growing in the UK, there is still some way to go to reach European standards. According to statistics from the European Fund and Asset Management Association, retail investors accounted for just 19 per cent of assets under management in the UK at the end of 2011, well below the European average of 25 per cent. Italy scores relatively well, at 42 per cent.

The UK position partly reflects the size and global nature of its stock market, with many international banks and fund managers doing business from London or Edinburgh. The fact that Stamp Duty is levied on share purchases is also a factor as few other European countries have similar taxes. Stamp Duty will continue to be levied on Main Market deals even after it is removed from AIM and evidence suggests it encourages trading through alternative instruments such as contracts for difference, which fall outside the scope of the tax.

Improvements in technology – and particularly the ability to communicate electronically with investors – means that, for companies, the cost of servicing a large army of retail shareholders has fallen sharply. And Schwieger points out that private investors can help to promote stability on the share register because they often take a more long-term perspective when investing through ISAs, etc, than institutional shareholders.

Even before the clamour of interest for private investors in the Royal Mail issue, private client brokers, under the aegis of the Wealth Management Association, had been campaigning for retail investors to be given more opportunity to participate in new issues. The enthusiasm with which the Royal Mail flotation was received suggests that companies could benefit from tapping into this buoyant source of demand for shares.