Investors pile into collectives after 5 August turmoil, ii Trading Index finds

• Net inflows into equities jumped by 167% in the four days following the stock market turmoil (6-9 August), when compared to 1-5 August.
• Net flows turn from negative in the period covering 1-5 August to positive between 6 and 9 August, with buys up 30% and sells down 42%.
• Demand for UK shares receded in July following a pre-election boom - down 77% month-on-month.
• Elsewhere, there was a notable uptick in demand for collective investments

Net inflows into equities on interactive investor, the UK’s second-largest DIY investment platform, spiked in the days following the significant downturns experienced by global markets on 5 August, according to the latest ii Trading Index.

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The investing barometer, which draws from data on the purchases and sales of investments (by value) made by ii’s more than 400,000 customers, shows that net inflows into equities jumped by 167% in the four days following the stock market turmoil (6-9 August), compared to net inflows in early August leading up to and on the day of the event (1-5 August).

While purchases of equities fell by 22% when comparing the same periods, there was a greater percentage decline in the number of sales (down 39%).

When it comes to collective investments (unit trusts, investment trusts and ETPs), net flows turned from negative, in the period covering 1-5 August, to positive between 6 and 9 August, with purchases up 30% and sales down 42%.

Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “Our data suggest that many of our customers put the age-old ‘keep calm and carry on’ investment maxim into practice in the days following the global market downturn. When it comes to collective investments, there was a 30% uptick in purchases, which points to investors attempting to buy on the dip in anticipation of a bounce-back in performance.

“Investors who adopted these approaches are likely to have been vindicated, as global markets have recovered since then.

“The recent market volatility highlights the importance of giving your investments ample time to smooth out the effects of short-term ups and downs, avoiding knee-jerk decisions, and maintaining a well-diversified portfolio.”

Investment trends in July 

One of the most significant developments from the latest instalment of the ii Trading Index is the declining demand for domestic shares in July, following a pre-election boom. Although net inflows into UK shares were 112% higher in July compared to May, they were down 77% from June and 98% from July 2023.

Meanwhile, there was a shift in demand for European equities, moving from net inflows in June to net outflows in July. However, these net outflows eased year-on-year, down 89% from July 2023.

North American and Asian equities also experienced a reversal of fortune, moving into negative territory after seeing net inflows in the previous month.

When it comes to investment instruments, net inflows into gilts (UK government bonds) jumped 72% month-on-month in July, ahead of the Bank of England's decision to cut the base rate for the first time since March 2020, on 1 August 2024. However, outflows from gilts were seven times higher than in July 2023. Overall, the net inflows figure for gilts was down 47% year-on-year in July. Net inflows into bonds also increased by 105% from a lower base.

Elsewhere, there was a notable uptick in demand for collective investments, with net inflows into exchange-traded products (ETPs), a category of investments largely consisting of exchange-traded funds (ETFs), up 55% month-on-month and 125% year-on-year.

A similar trend was observed in unit trusts, where net inflows rose by 21% month-on-month and 74% compared to July 2023. Meanwhile, investment trusts saw net inflows in July, after an equal measure of inflows and outflows in June. However, net flows into these instruments were down 44% year-on-year.

Sam Benstead, Fixed Income Specialist, interactive investor, says: “Anticipating an interest rate cut from the Bank of England in August, investors moved money into gilts in July to lock in a fixed return from the UK government. While gilt markets reflect expectations for future interest rates, and a cut was priced in by markets, yields have been falling since the start of July and moving early was the difference between a 4.2% annualised return on 1 July and a 3.75% annualised return at the end of August on two-year gilts. 

“Nevertheless, a year ago investors were able to lock in even higher returns, with two-year gilts paying more than 5%. This could explain the year-over-year decrease in flows into gilts, as absolute returns are less attractive. The fall in yields is a result of falling inflation and a relatively strong economy, which gives the Bank of England breathing room to cut interest rates if it feels it needs to stimulate growth.” 

Most-traded investments on ii

Overall, there were more purchases than sells of investments available on interactive investor: 60% buys, 40% sells in July. The buys are down slight from June (61% buys, 39% sells).

The most-traded investments in July are outlined below.

Richard Hunter, Head of Markets, interactive investor, says: “Prior to the US recessionary fears which sent global markets into a brief tailspin at the beginning of August, ii customers were trading as usual in July, with a skew (60%) towards buying rather than selling.

“Nvidia – the market darling which would see a sharp dip in its share price to then put on 31% by the middle of August and remain ahead by 170% this year alone – again topped the chart with a buy rate of 67%.

“Elsewhere and with interest rates now probably on a downward trajectory, high yielding stocks such as Lloyds Banking (dividend yield 4.9% and additional interest arising from its half-year results), BP (5.2%) and Legal & General (8.9%) attracted attention, particularly among income-seeking investors.

“Tesla also appeared once more in the top 10 to further represent the ‘Magnificent Seven’ wave, while recovery plays easyJet and Ocado saw differing deal flows which kept ii customers busy over a traditionally quiet month.”

Notes to Editors

Flows data for July 2024

N/A denotes change from net outflow to net inflow which can’t be calculated on a percentage change basis.