Young Investors Shun Utilities Stocks

Despite the attractive yield utility stocks provide, young investors are favouring more risky picks such as oil and gas stocks, according to online trading platforms

Karen Kwok 6 July, 2017 | 3:11PM
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Younger investors are shunning stable income stocks in favour more volatile growth companies; taking on more risk relative to older investors, according to online trading platforms.

Utility stocks SSE (SSE) and Centrica (CNA) are among the top 20 FTSE 350 dividend paying stocks, each paying 6% yields, while National Grid (NG.) offers a 5.1% yield.

But despite these attractive income offerings, for investors between 30 to 45 years old, these stocks fail to make the cut.

“Utility stocks are not proving popular with our younger investors. They seem to want stocks that are quite volatile. They like volatility so they can move and jump around – buying there and selling there. That’s why they like tech stocks and Bitcoin and they trade them frequently,” said Jordan Hiscott, chief trader at ayondo markets, the online trading platform.

Separate data provided by The Share Centre painted a similar picture. Among investors aged 60 years and older, National Grid and United Utilities were among the top five most bought companies in the past six months. However, these two stocks did not appear on the most bought stocks list for younger investors at all.

Small Oil and Gas Stocks More Popular

Instead, over the past six months, the most bought companies among investors aged 18-59 years old were small natural resources exploration companies Sirius Minerals (SXX), 88 Energy (88E) and UK Oil & Gas Investments (UKOG), according to the Share Centre.

Looking at the more detailed breakdown by age, Sirius Minerals was the most bought stock in June among 18-25 year olds, and 26-40 year olds, followed by 88 Energy.

Data provided by investment platform Tilney also showed that Sirius Minerals is the second top stock bought by the 18 to 45 years old investors over the past month. A European oil and gas exploration company Sounds Energy (SOU) came fourth on the top five most bought lists at Tilney.

Helal Miah, investment research analyst at The Share Centre, said that these basic resources exploration companies potentially provide a very high and quick return to investors if these groups’ drilling projects succeeded.

“Once these companies granted regulatory approval, their share prices sky-rocket. Any positive news from these companies can see a huge spike in share price,” said Miah.

Sirius Minerals is a producer of multi-nutrient fertilisers. The company currently organised into one business division: the UK segment. The stock is up 57.6% year to date. Sirius Minerals have a more volatile share price – as seen last year that its shares came down 60% from the peak level at 45.5p in August last year to 18p in December. Despite the strength of the company’s share price so far this year, the current level is still lower than the August’s peak level.

Looking at blue-chip stocks, Ayondo’s Hiscott said pharma stocks GlaxoSmithKline (GSK) and AstraZeneca (AZN) were popular among investors aged 30 to 45 years old, thanks to their attractive yields and the prospect of the next generation of drugs. GlaxoSmithKline pays a 4.9% yield while AstraZeneca pays a 3.9% yield, according to Morningstar data.

You are Never Too Old or Too Young for Lloyds Bank

Investors from different age groups may favour different sectors, but no matter your age, Lloyds Banking Group (LLOY) is the top traded company of the year. Data from The Share Centre showed that for investors between 41 to 59 years and above 60 years old, Lloyds is on top of the most bought companies list, while the bank was the most bought stock by 18-25 years old in March and May.

Miah said it was not too much of a surprise to see a stark contrast between investments made by experienced investors and their younger counterparts, particularly given that the investment objectives for both cohorts vary dramatically.

“On one hand, you have a group of investors that are getting closer to their retirement age and are therefore hunting companies that will offer them the income they desire to ensure a comfortable life. Indeed, the years of experience they’ve encountered means they’ve been there and done that, for the use of better words, and are therefore aware of the gains and losses to be made, so a preference for tried and trusted companies is likely to be desired.”

“Contrastingly, we have a younger group of investors that are likely to be investing for their future and are perhaps yet to get a grip of risk versus reward. What is surprising to me is the fact that this group are opting for such high-risk companies with volatile histories and recovery stories.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
88 Energy Ltd0.14 GBX0.00
AstraZeneca PLC12,052.00 GBX0.20Rating
Centrica PLC140.25 GBX-0.28Rating
GSK PLC1,730.00 GBX-0.57Rating
Lloyds Banking Group PLC54.76 GBX-1.48Rating
National Grid PLC845.37 GBX-3.56Rating
Sound Energy PLC0.98 GBX3.88
SSE PLC1,704.30 GBX-2.50Rating
UK Oil & Gas PLC0.02 GBX1.70

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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