Many of the world’s highest profile investors are firm believers in the ‘contrarian’ approach to playing the markets. When everyone else is selling, buy and when everyone else is buying, sell. Those investing online in ISAs and SIPPs also tend to procrastinate just as much as everyone else. Despite having all year to invest the £20,000 annual allowance, there tends to be a last minute rush between January and April which particularly accelerates over the last month or two of the tax year.
An investigation by The Telegraph newspaper asked the four biggest UK stock brokers what investments have proven most popular among ISA investors over 2018. The investment platforms surveyed were Hargreaves Lansdown, AJ Bell, Barclays and Interactive Investors. Investors who prefer the contrarian approach might consider the most popular picks those to sell or avoid. Or perhaps they are so popular for good reason. Unfortunately, the expert comments on the most popular choices hint at more of a herd mentality than anything else.
The most popular individual shares across the big UK stock brokers and investment platforms are a mix of the most well-known names and currently fashionable. Lloyds, BP, Shell, pharma giant GSK and Vodafone are all among the most bought shares this year. These companies all traditionally pay high dividends and as a result are popular with income investors. However, Psigma investment manager Tom Becket warns that investors should be careful about putting all their eggs in these baskets. He believes these stocks have been flooded with capital as bond yields dropped and many of them have higher debt levels than in the past which could mean future dividend levels are vulnerable.
Among the most popular ‘new’ stocks are online fashion retailer Boohoo.com and potash miner Sirius Minerals. Both are in the top 10 of the shares most bought by AJ Bell ISA investors. Boohoo’s share price is up 250% in two years and has momentum. However, AJ Bell’s Russ Mould thinks it’s already looking expensive and could come under pressure if growth has any kind of dip. Sirius is also a risky play.
The company is in the development phase of building a huge potash mine in Yorkshire but with no earnings, profit or cash flow yet share price is very much optimism based. If things don’t go as planned, the prices recent popularity of the share has driven it to could prove to be an expensive mistake. On the other hand, if the mine’s output and potash price targets work out, investors will do very well. The risk factor is, however, less priced in than would typically be expected to be the case for a company at a similar stage of development.
The most popular funds with investors are also those run by big name managers with strong track records. Among the most popular with those investing online across the 4 platforms are: Fundsmith Equity, Woodford Equity Income, Jupiter European, Stewart Investors Asia Pacific Leaders, Lindsell Train Global Equity, Crux European Special Situation, Man GLG Japan Core Alpha and Legg Mason IF Japan Equity.
Some of these funds, notably Woodford Equity Income and Stewart Investors Asia Pacific Leaders, have performed poorly over the past year but investors are clearly relying on the fund managers pulling through longer term. While judging a fund on one year’s performance is clearly a mistake, AJ Bell’s Mr Becket also believes investors are guilty of putting too much faith in past performance rather than looking at up and coming fund managers. He also thinks the lack of interest from UK investors in bond funds is potentially a mistake and possibly indicates ‘excessive risk taking and complacency’.