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Are UK retail investors turning back to FTSE stocks?


UK retail investors could be starting to throw their collective weight behind the FTSE ahead of a widely predicted market rotation away from big tech and US stocks, according to data from the latest Retail Investor Beat (RIB) from trading and investment platform eToro.

In the quarterly study, which surveys 1,000 UK-based investors, four out of five (80%) say they now hold UK-listed stocks in their portfolios, the highest level in over a year and a 10% jump on the previous three months. This is a big reversal on a trend which saw many investors betting on the so-called Magnificent 7 US mega tech stocks.

Investors in the study were also asked which market they think has the strongest prospects in the next five years. The UK came out top, with 22% of the votes, narrowly beating the US (21%) despite the very contrasting fortunes of both markets in recent years.

This optimism was largely driven by younger investors, with two in five (39%) 18 to 34-year-olds backing their home market to outperform over the next five years. By contrast, just 9% of investors aged over 55 opted for the UK, instead predicting that the US (24%) and emerging markets (21%) will see the strongest gains.

Ben Laidler, Global Markets Strategist at eToro said: “The UK stock market has been out in the cold for several years but our latest survey suggests that sentiment around the FTSE could finally be gathering steam. We’re already seeing the makings of a global market rotation and UK retail investors are clearly keen to get ahead of the game by adapting their investing approach. The UK market, with its stellar dividend performance, appears to benefitting from this trend.”

One factor behind the increase in both optimism and allocation towards the UK may be the interest rate cuts expected this year, which some predict could trigger a so-called market rotation away from big tech stocks and the US market, toward cheaper markets and more rate-sensitive economies like the UK.

Are you planning to adjust your portfolio?

Almost half (44%) of UK investors plan to adjust their portfolio in anticipation of this shifting macro environment, with 45% of this group saying they will reduce their cash allocation and 41% planning to increase their allocation to equities. Amongst those rebalancing their portfolio, one in three (33%) will allocate more to dividend-yielding stocks – another potential driver for the surge in investors backing the UK, given the FTSE 100’s dividend credentials.

This trend of rebalancing investments in search of dividends was mirrored across the 10,000 global respondents (also 33%), indicating that international investors could be drawn to the UK market this year.

Alongside the surge in interest for the UK market, there are other signs from the data that UK investors are anticipating a market shift. A significant number (21%) said they are scaling back on investments in the so-called ‘Magnificent 7’ tech stocks (which includes Amazon NASDAQ:AMZN, Apple NASDAQ:AAPL, Microsoft NASDAQ:MSFT, Meta Platforms NASDAQ:META, Tesla NASDAQ:TSLA, Nvidia NASDAQ:NVDA and Alphabet NASDAQ:GOOGL), despite their phenomenal recent performance.

However, many are still holding firm on the sector, with 21% stating they will invest more in the Magnificent 7 than they did last year, and 39% planning to maintain their current allocation to these stocks. Tech was also the sector that UK investors were most likely to increase their investments in this year (13%) followed by the more cyclical financial services (12%) sector.

Laidler said: “Although it’s been hard to look past the recent performance of big tech stocks and the Magnificent 7, one in five UK investors believe the time has come to shift focus, with many recognising the value of dividends, as savings rates start to dwindle.”

It’s also important to remember that reinvested dividends have historically accounted for the majority of total returns in non-US markets, and payouts are forecast to rise by 5% this year.

As global investors match UK investors’ enthusiasm for high-yield dividend stocks ahead of rate cuts, this could offer a reprieve for a UK market dominated by banks, utilities, and real estate companies that have historically offset relatively low growth by providing solid, dependable returns to investors.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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