There was good news from the London Stock Exchange last week. That’s not a reference to the booming FTSE 100 index, which despite all those fears of an October crash is up more than 17 per cent on the year.
No, it’s that there have been a couple of important floats, with the specialist banking group Shawbrook starting trading on Thursday and the canned tuna enterprise Princes Group on Friday. These come on top of The Beauty Tech Group last month.
It’s a modest revival, for the number of share offerings is tiny by past standards. We are still in single figures this year, whereas there were 339 in 2005 and 300 in 2006. Even after the financial crisis, they were between 50 and 100 in most years up to 2022.
But given London has slipped out of the top 20 financial centres for initial share offerings, which is pretty humiliating, any recovery deserves a welcome. We should not, however, see this purely in City terms – and implications for the financial services industry – but focus rather on what it means for British people.
Are we starting to become more interested in putting our savings into equities rather than letting them sit in bank accounts?
After all, over any long period savers get vastly better returns on shares than on bonds and cash.
New era: Apps make it easy to invest and to see how well those investments are doing
The UBS Global Returns Yearbook shows that since 1900 US equities have given an overall real return – so after inflation – of 6.6 per cent a year, against 1.6 per cent for bonds and 0.5 per cent for bills (a proxy for cash). For the UK the numbers are 5.4 per cent, 1.4 per cent and 1.0 per cent.
The outperformance of equities is so overwhelming that it is hard to see why anyone should hold bonds or cash at all, except perhaps to keep some funds aside for unexpected emergencies.
This is the main reason why I believe the Chancellor would be right to cut the amount people can put into cash ISAs (Individual Savings Accounts) in the Budget, as long as she increases what they can save in equities.
This is a deeply unfashionable view, but I am convinced that it is absolutely in everyone’s self-interest that they should save long-term by buying shares rather than bonds, or simply getting interest on a bank account.
After all, the precursor of ISAs were Peps, personal equity plans, introduced by Nigel Lawson in his Budget in 1986 as a way of encouraging individuals to invest in shares by making capital gains and dividends tax-free.
Peps were replaced by ISAs in 1999, when they were bundled in with another savings scheme, Tax-Exempt Special Savings Accounts, or TESSAS.
So gradually the original rationale for encouraging people to build an equity portfolio in a tax-efficient way was undermined.
We have Revenue & Customs data only from 2022 but then there were 4,850 ISA equity millionaires. There will be a lot more now, given what has happened to the market since then. By contrast, the most a cash ISA saver could have accumulated, putting in the maximum every year since 1999, would be less than £300,000.
There is, however, an issue. Most of those ISA millionaires developed their investment habit long ago. Their average age is 72 to 74. So what will happen next? Here there are rays of light. There is evidence that shareholders generally are more active.
A few days ago the Association of Investment Companies reported that nearly half of self-directed private investors in investment trusts said they used their shares to vote, up from 38 per cent two years ago.
Attendance at annual meetings, though still very low, has crept up, with young investors the most likely to go to the meetings, either online or in person.
And globally a World Economic Forum survey of 13 countries this year found that 30 per cent of Gen Z started investing in university or early adulthood, the highest proportion of any age group.
My own feeling is that we are in the early stages of a revival of equity culture, driven in part by the market boom but equally by the apps that make it easy to invest and to see how well those investments are doing. I hope I’m right, because if I am, this could be the start of something big.
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