Hargreaves Lansdown’s retail investors jump into equity funds at record highs

Hargreaves Lansdown has released investor buying activity for May, revealing its ISA account holders have waded into equities in a big way.

During May, HL ISA investors picked out broad equity indices for their portfolios, particularly those with a focus on US stocks providing exposure to the AI story and wider technology sector.

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Top Funds bought in ISAs, May 2024 (net buys, HL clients)

UBS S&P 500 Index
Fidelity Index World
Legal & General US Index
Legal & General Global Technology Index Trust
Jupiter India
Legal & General International Index Trust 
Vanguard FTSE Global All Cap Index
Legal & General European Index
Artemis Global Income
Legal & General Global 100 Index

“It’s a firmly ‘risk on’ mood for HL clients. Interest rates cuts have been kicked into the long summer grass, and the April market slump is in the rearview mirror, meaning ISA investors are filling their baskets with equity funds,” said Emma Wall, head of investment analysis and research, Hargreaves Lansdown

“Five of the top 10 most bought funds in ISA wrappers last month were global equity funds, with the remainder made up of US equity and tech trackers, an L&G European index fund and ISA stalwart Jupiter India, which has been a mainstay in the top 10 lists for the past six months.”

“This market optimism amongst HL clients is not surprising; the spectre of recession has passed and equity markets on both sides of the Atlantic rallied through the first half of May. The S&P 500 shrugged off April losses to hit yet another all-time high, while the FTSE 100 similarly recorded a new peak mid-month.”

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While its great US and UK equities have hit record highs in recent months, the data from Hargreaves Lansdown’s client’s buying activity during the period should be treated with caution. Retail investors are notoriously bad at timing the market and are often guilty of chasing returns in fear of missing out.

It should be no surprise that HL’s retail client base bought up equity-based funds given the biases associated with individual investor activity. However, retail investors rushing into stocks at elevated levels has historically proved to be a sell signal for equities.

As the warning goes, when your taxi driver starts talking about stocks, it’s probably time to sell. This usually happens near a peak in stocks.

That’s not to say we’re anywhere near euphoria in stocks, but as Emma Wall points out, the rush into stocks by HL’s investors may mean many over look the opportunity to diversify portfolios into other asset classes that may offer better value than equities.

“While stickier-than-hoped inflation and higher-than-anticipated jobs data has meant interest rate cuts are no longer expected this month, it is better to be early when it comes to investing and now could be a great time to buy bonds,” Emma Wall said.

“Most portfolios would benefit from the diversification a fixed income fund brings to an equity portfolio, and over the long-term, bonds offer both income and growth opportunities.”

UK gilt and US treasury yields are trading near multi year highs and the potential capital gains on offer – should interest rates fall – are compelling.

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