·
UK institutional investors added a record amount to their
asset portfolios in Q3, according to the "First Release" of the widely
followed "MQ5" report, which was issued this morning by the Office of
National Statistics. Insurance companies, pension funds and trusts (mutual
funds) acquired a net of £27.8 billion in UK and overseas securities, cash, and
real estate and other assets, compared with £23.6 billion in Q2 and a previous
record of £27.7 billion in Q1 2001. Further, the sum of the first three
quarters of 2006 is £67.7 billion, just £1.8 billion shy of the largest
investment amount in any previous YEAR, which was £69.5 billion in 2000.
·
Investment patterns have been quite interesting this year as
well. In both Q2 and Q3 the firms have concentrated on additions to
short-term holdings. See in the table below that such "cash and
equivalents" are a large proportion of net investment, indeed, about 42% in
Q3. In Q2 they were 40% of the total. This looks at a glance to
reflect the negative yield curve in the UK -- and elsewhere, for that
matter. In the second graph, we show net investment in short-term
assets against the yield curve, measured as the spread between the 10-year
nominal par yield on gilts and the 1-month sterling inter-bank rate. There
appears to be a rough negative relationship, and indeed, why would investors put
their money out long when short instruments pay more?
· A second development of interest is the net liquidations of
company shares, which are evident in our table. These groups of
institutions have been net sellers of shares continuously since the spring of
2003, and off-and-on since 1999. It is important to notice here that these
figures are the net of acquisitions and what in the UK are known as
"realisations". They are NOT net changes in market value.
In fact, the latter have been positive, as seen in the third graph, which also
shows the trend in stock prices. The market value of stock holdings has
continued to rise, even as this important UK investor group has been
selling. It's an intriguing situation.