6th June 2011

Schroders: High risk strategy: the 1.5 million ‘one stock wonders’

• 1.5 million people have all their equity investments in the stock of a single company, says Schroders
• A further one million people have over 90% of their direct share holdings in a single company
• Almost a quarter (21%) of those with shares held directly in a company made these equity investments via a Save As You Earn (SAYE) scheme

New research published by Schroders, the global asset manager, reveals that 1.5 million equity investors have all their shares invested in a single company, a notoriously high risk strategy. A further one million (9%) of those with directly held shares have at least 90% of their holdings in the stock of a single company. Over a third (34%) of those with monies invested directly in company shares (not via a fund, unit trust or pension scheme) has at least 50% of their shares in one stock.

The majority of investors (56%) with directly held shares (those not in a pension or other investment vehicle) cite the desire to make future capital gains as the main reason for not diversifying their portfolio. Almost a third (32%) of these investors were stung by falls in equity prices in recent years and are waiting for their shares to bounce back in value before they divest these stocks, as they do not want to record a loss on their investment.

A further 5% of people with directly held stocks are keeping them for sentimental reasons, as they were a gift or were paid by their employer, while a further 5% are keeping the shares to gift to family members in the future.
Robin Stoakley, Managing Director, Schroders UK Intermediary Business said: "Investing in a single company does leave one potentially exposed should that business run into difficulties. In the last few years we have seen established businesses rapidly disintegrate, such as Bradford & Bingley and Northern Rock, leaving little or no value for investors. A balanced investment portfolio sees investors spread their risk, while potentially generating strong returns."

Over half (57%) of people purchasing stock directly in a company did so because they believed the shares would increase in value and they would make a capital gain upon selling these shares. Almost a quarter (21%) of those with shares held directly in a company secured them as part of a Save As You Earn (SAYE) scheme, demonstrating the value of employers facilitating access for savers to the equity market. A further 15% of those holding shares directly in an enterprise inherited or were gifted these shares.

Darius McDermott, Managing Director, Chelsea Financial Services said: "Risk can never be entirely eliminated but it is possible to manage it by spreading one's investments. Through a unit trust investors can achieve broad exposure to shares representing good companies across a variety of industries and sectors. Other unit trusts allow access to bonds and a mix of other asset classes for even greater diversification. Investing in a unit trust managed by an experienced active fund manager with a good track record should also ensure that the portfolio is regularly re-balanced allowing the investor to take profits if certain stock valuations have risen sharply. Investors also get the benefits of greater economies of scale, such as reduced transaction costs and access to certain investments normally unavailable to individual investors."

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