Defence pays dividends for private investors

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Retail investors bought 484 million pounds-worth of equities in December and January, according to the latest research by Capita Registrars.

This means they have been modest net buyers of shares for six months running - buying some 1.5 billion pounds of shares - following 18 months of net selling in which they shed a colossal 15 billion pounds.

Net buying, although modest, and the outperformance of sectors in which they are overweight - such as small caps and defensive stocks - saw retail investors increase their share of UK Plc to 11.9 percent from 11.6 at the end of November, the highest level since September 2006.

John Roundhill, a director of Capita Registrars, said: "the stock market, with its dramatic mood swings, can best be described as bipolar.

"But private investors have played a clever game. They used the last few months of the bull market to reduce their equity holdings and to refocus their remaining portfolio into stocks better able to weather an economic, and a market, downturn.

"Although they tend to sit on their hands when the markets are very volatile, sharp downward dips proved irresistible to them, and they have made modest reinvestments."

By the end of January, they owned 209 billion pounds-worth of equities.

That was down 5.8 percent on the end of December but even allowing for net purchases, private investors' shareholdings outperformed the wider market: the FTSE All-Share fell 8.6 percent during December and January.

The two poorest performing sectors during the period were consumer services and financial stocks - areas heavily exposed to worsening economic conditions - which fell 14 percent and 11 percent respectively.

In the 12 months to end-November, private investors had dumped almost 3 billion pounds of holdings in these two sectors.

By contrast, utilities and telecoms stocks - defensive sectors whose shares tend to outperform in weak markets - only fell 5.6 percent and private investors ploughed 1.9 billion pounds into these stocks.

"Private investors are not as credulous and easily led as they are often depicted," added Capita's Roundhill.

"They consistently sold into strength as the stock market peaked, carefully refocused their holdings to prepare for stormier economic weather and took advantage of clear buying opportunities when those appeared.

"With bricks and mortar no longer such a solid investment, the advantages of good dividend yields and the ability to diversify one's risk, make shares look more attractive."

Capita Registrars' "Private Investor Watch" captures the trading activity of more than 1.6 million private investors. The figures for December and January are based on over 120,000 separate trades.