A Warning Signal From Retail Investors?

Posted on 16/05/2011


Hargreaves Lansdown, the retail broker that handles my ISA and SIPP accounts provides on its website a regular breakdown of the most popular trades by its customers, which can be viewed by following the link here.  I include below a table showing the current breakdown of the most popular buy transactions by value.

The chart contains many expected names, such as UK large-cap stocks Lloyds Banking Group, Vodafone, Barclays and GlaxoSmithKline, that might be expected to form a key part of an individual’s portfolio.  However, what surprises me is the sheer value of trades in precious metal ETFs, including funds that incorporate leveraged and short positions.  The data only includes the top 20 positions, but we can see that 14.2% of trades by value (out of the 39% of the total which have been disclosed) are in commodity ETFs, and the most popular asset to purchase (and nearly 2x the second most popular) was a leveraged silver ETF.  Part of the commodity bull thesis is that investors are generally underweight commodities, which should provide upward price pressure as allocations are increased over time.  While just a small piece of evidence, this suggests that certain sections of the investment world already have (too?) high allocations to precious metals, providing limited scope for further increases.  In my view, the fact that precious metal funds are packed with fickle (and ill-informed?) retail investors is certain not a bull signal and arguably more like a warning sign.

The other surprise for me is the presence of relatively speculative small-capitalisation stocks.  Xcite Energy, second on the list, is an oil exploration company that is yet to report any revenues; Pace is an electronics manufacturer who share fell by 40% in the past week following an excuse-laden profit warning (covered here in detail by Mark Carter); and Sefton Resources, a micro-cap oil explorer.

This data only reinforces my opinion that retail investors are prone to chasing the next “get-rich-quick” momentum opportunity, potentially setting the foundations for a major crash when the momentum comes to an end and they all head for the exit at once.

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