Taking the temperature of the retail investor

Every month we publish the list of most bought investments on the Interactive Investor (II) platform, which provides a snapshot of how retail investors are positioning themselves.

Scottish Mortgage had been in pole position among investment trust bestsellers since June 2019, while Fundsmith Equity had topped the fund charts every month since March 2021. Both remain extremely popular, still towards the top of the list of top 10 in October.

But, they were knocked into second place last month by City of London and Royal London Short Term Money Market – both income-focused strategies, highlighting a shift in retail investor appetite amid the higher interest rate environment. This is part of a wider change that has been materialising over the past two years with income strategies overtaking growth strategies, although many prefer a diversified mix of both. My colleague Kyle Caldwell, collectives editor at Interactive Investor said: “More broadly, II customers continue to favour fund strategies that have their fingers in investment opportunities globally, offering diversification amid market uncertainty stoked by factors like high interest rates, inflation, and geopolitical tensions.”

Retail investors are in search for opportunities on the other side of the Atlantic. In the US, Tesla is a typically hugely popular stock among II customers and remained a mainstay of many portfolios last month for good reason. It has been a standout stock market winner this year, logging a gain of over 120 per cent since January. But while the last month has seen impressive price action, the second half of the year has been challenging with shares pulling back from the mid-July peak.

Bleak Black Friday forecast

According to PwC, UK shoppers will spend £5.6bn on deals this Black Friday, down over 20 per cent from £7.1bn in 2022. Interest has also fallen from 61 per cent of consumers in 2022 to 44 per cent this year. The Black Friday and Cyber Monday sales weekend falls ahead of payday in the UK. Coupled with the cost of living crisis, elevated inflation and higher interest rates means that consumers are less likely to spend in the run up to the critical festive season for retail.

Oil prices

The International Energy Agency (IEA) expects the global oil market to see a surplus in 2024. Its head Toril Bosoni said to Reuters “global oil stocks are low, which means that you risk increased volatility if there are surprises on either the demand side or the supply side.” OPEC+ is reportedly mulling an extension to its oil supply cuts at its meeting this month in response to weak demand. Oil prices have fallen sharply since the highs in September from above $90 a barrel for Brent crude to closer to $80.

Chinese new year

Goldman Sachs is optimistic about the Chinese stock market in 2024. Analysts forecast gains of 12 per cent and 15 per cent next year for the MSCI China and the CSI 300 respectively. The projection is underpinned by an expectation of earnings growth of around 10 per cent. The bank upgraded its outlook on both China’s food and beverage sector and its technology hardware sector to overweight. After a strong start to the year, Chinese stocks have struggled with the CSI 300 down around nine per cent year-to-date.

Animal spirits from Batnick and Carson

Hosted by Michael Batnick and Ben Carlson, Animal Spirits is ‘a show about markets, life and investing.’ The latest episode discusses this year’s performance for the Nasdaq 100, powered by the so-called Magnificent Seven. They dissect the major divergence between the index’s top winners and the rest of its components which are lagging sharply behind, arguably leaving it exposed to downside if the top winners don’t continue to outperform.

They argue that the main reason for the index’s upside is merely because it has been recovering from heavy losses in 2022 during the so-called ‘tech wreck’ which punished the US mega-cap tech. They also argue that the market hasn’t got enough credit for being up this year, given that the Fed has been raising interest rates.