Investors slash stock market exposure

Investors slash stock market exposure

The number of investors increasing their investments in the stock market halved at the beginning of this year, according to figures from the Association of Investment Companies.

Research into investor confidence found the number of investors increasing their stock market exposure halved by 25 per cent from 49 per cent a year ago.

Annabel Brodie-Smith, communications director at the AIC, said investor confidence has taken a knock in turbulent markets.

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She said: “Of course market timing is very difficult to get right and no-one knows what will happen to markets next.

“However, the market is currently significantly down on its April high and in the past brave long-term investment company investors have been rewarded.”

The research found investors were not panicking either, with only 8 per cent saying they were actively decreasing their stock market exposure, which is actually slightly less than the same period last year.

“It is encouraging to see there is no panic selling,” said Ms Brodie-Smith. “Given the volatile start to the year, it’s worth remembering the benefits of regular saving, which can smooth out some of those stomach churning highs and lows in the price of shares.

“Known as ‘pound cost averaging’, it means investors buy fewer shares when markets are high, and more when markets are low, removing some of the risk of market timing.”

Of the quarter of investors who said they were actively increasing their investments, more than half said they were taking advantage of stock market volatility.

The number of investors favouring cash Isas more than doubled this year, with a quarter preferring the product compared to 10 per cent a year ago.

But the number of investors opting for only the shares element of an Isa is 30 per cent, down from 37 per cent a year ago.

When asked what was the biggest threat to their finances, the three worries were:

• Poor returns on cash deposits (ironically since there has been such a huge increase in the number of investors opting for a cash only Isa)

• China’s market triggering more stock market volatility

• A stock market crash

The UK remained the most favoured region to invest, however, a growing number of people were unable to choose which sector is the most attractive.

The research was conducted using Interactive Investor with private investors between 13 January and 12 February this year.

Last month, investor confidence fell to a three-year low.

The AIC’s research came as the Investment Association reported market volatility and a corresponding “risk on, risk off” approach in the opening month of 2016 resulted in the worst net retail outflows since October 2008.

Investment Association (IA) interim chief executive Guy Sears said a risk on, risk off approach from investors had exacerbated market volatility in January, resulting in net retail outflows of £463m from UK-based funds.