ii Trading Index: reprieve in demand for domestic stocks in August

• Elsewhere, there was a shift in demand for North American, European and Asian equities, which moved from net outflows in July to net inflows in August
• When it comes to investment instruments, net inflows fell across the board, with the exception of equities, which went from net outflows in July to net inflows in August
• Significant change in top 10 traded vs July: only three individual shares feature but three gilts make the list
• ii record second-busiest day ever for customer trades on 5 August as fears of US recession and Japanese equities sell-off rocked markets.

There was a reprieve in demand for domestic shares among customers of interactive investor, the UK’s second-largest investment platform, in August, which proved to be a volatile month for global markets.

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The latest ii Trading Index, which draws from data on the purchases and sales of investments (by value) made by interactive investor’s more than 425,000 customers, shows that amid a volatile month for global markets, net flows into UK shares available on ii were up 43% compared to July.

However, demand for UK shares still remains far off 2023 levels, down 68% in August 2024 compared to August 2023.

Richard Hunter, Head of Markets, interactive investor, says: “Demand for domestic stocks has been buoyed by positive economic data, which suggests that the UK is turning a corner from the economic pressures which pulled it into a mild recession last year. Inflation is moderating, there has been decent momentum in GDP growth and a cut in interest rates, could turbocharge economic growth through lower borrowing costs, which could encourage both consumer spending and business investment. The removal of some political uncertainty following July’s general election also helped matters.

“It will be interesting to see whether the momentum carries over to September. On the one hand, consumer confidence in the UK has dipped on the back of some downbeat economic messages from the new government (let alone the upcoming Budget), but more positively the main indices have been seeing the benefit of the China effect, especially this week, and ongoing M&A activity.”

Elsewhere, there was a shift in demand for North American, European and Asian equities, which moved from net outflows in July to net inflows in August. Year-on-year, net flows into European equities jumped 34% in August, but fell 6% for North American equities.

When it comes to investment instruments, net inflows fell across the board, with the exception of equities, which went from net outflows in July to net inflows in August. However, the net flow figure was down 86% on a year-on-year basis.

Net flows into unit trusts and exchange-traded products (ETPs), a category of investments largely consisting of exchange-traded funds (ETFs) fell month-on-month by 38% each, and were down 84% and 46% year-on-year, respectively. Elsewhere, net flows into both investment trusts and bonds went from positive in July to negative in August.

Meanwhile, net flows into gilts fell by 24% month-on-month and were down 54% year-on-year. However, three gilts rank among the most-traded investments by value on interactive investor, all with buys far outstripping sells (see table below).

Royal London Short Term Money Market tops the list. The fund has proved popular among ii customers looking to pocket a distribution yield of around 5% from an area of the bond market that is low risk.

Sam Benstead, Fixed Income Lead, interactive investor, says: “While yields on short-term gilts have fallen and now pay less than 4% on an annualised basis, compared with a little over 4.5% a year ago, they remain popular for good reason. 

“First, inflation is back around the Bank of England’s target, so the ‘real’ or inflation-adjusted nominal yields look more attractive. 

“Second, these gilts are all trading at a discount to their £100 par value because they have very low coupons, which means that a large part of the yield of the gilts comes from the difference between the cost of the gilt and the £100 redemption value, rather than the coupons. This capital gain is tax-free, making these gilts attractive for people who hold them outside an ISA or SIPP.

“Royal London Short Term Money Market yields even more than short-term gilts, at 5% currently. This is because yields on money market instruments closely follow the Bank of England base rate. While rates have begun to drop in the UK, they are still at 5% after only one 0.25 percentage point cut, which is an attractive return for a conservative investment instrument.

Most-traded investments on interactive investor for August

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

The most-traded investments in August (by value) are outlined below

Kyle Caldwell, Funds and Investment Education Editor, interactive investor, says: “Last month, the top 10 table was jam-packed with individual shares, whereas this time only three feature. BP (LSE:BP.) and Legal & General Group (LSE:LGEN) are favoured among income seekers looking for market-beating yields, currently 5.7% and 9.1%.

“NVIDIA Corp (NASDAQ:NVDA), the hottest stock since the start of last year, also continues to attract plenty of investor attention. While the stock had a wobble over the summer, investors were undeterred, and some will have viewed the volatility as an opportunity to buy on the dip.

“Turning to the funds in the top 10 table, as has been the case for a number of years, investors continue to be drawn to those that track the market. On the back of strong returns for global stock markets over the past decade, some investors are favouring the broad exposure offered by index and ETFs.”

5 August second-busiest day for customer trades on ii

ii recorded its second-busiest day ever for customer trades on 5 August, following the significant downturns experienced by global markets.

There were more purchases than sales of investments on that day (57% buys versus 43% sells), with fears of a US recession, rising interest rates in Japan, a stronger yen, and lofty tech stock valuations, fuelling a sell-off.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Shifting market dynamics and heightened volatility typically elicit an uptick in trading activity as investors adjust their portfolios in response to emerging opportunities and risks. For some, this means buying into assets at lower prices, hoping for future recovery, while others might be selling off positions to limit potential losses.

“While the increased activity is a natural response to the uncertainty and perceived potential for profit or protection, it is important to remember that investing is a long-term discipline. Given the intrinsic ups and downs in markets, the key to success is avoiding knee-jerk decisions and maintaining a well-diversified portfolio.”

5 August ranks behind 9 November 2020 as the busiest day for customer trades on interactive investor, sparked by news of a Pfizer Covid vaccine breakthrough, which sent markets into a frenzy. 

23 February 2021 ranks in third position, triggered by a sell-off in tech stocks following a rise in US bond yields. The fourth and fifth busiest days for customer trades on interactive investor were 24 February 2022 and 24 January 2022, both coinciding with developments related to the Russia-Ukraine war.

Top 5 busiest day for customer trades on interactive investor

Notes to Editors

Flows data for August 2024:

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