Personal Finance: Private Investors Make a Return to Equity Markets

Article excerpt

Byline: Peter Axon

A t long last private investors are returning to equity markets. Many have seen a ray of light at the end of the tunnel which they regard as a signal that the prolonged global economic recession is coming to an end.

Therefore, financial experts see this as the ideal time to commence a confidence building exercise.

Share prices have risen vigorously over the past six months. Since the 2003 low-point on March 12, equity market sectors have bounced at different rates.

If you thought the FTSE 100 index was having a robust run, take a look at small and medium-sized companies.

While the index of the largest UK firms is up by about 15 per cent, the 250 index of medium-sized companies has jumped by 45 per cent. However, the small company index is top of the pack with a rise of more than 50 per cent.

What's more, this is not a sudden occurrence. The tiddlers have been outpacing the titans for much of the three years since the money markets hit their peak. In particular, the small fry have distributed some strong profits to shareholders. Those investors who have been tempted to dip their toes again into equity funds will be interested to peruse stock tables.

For instance, performance calculations by independent statisticians Standard and Poor's include initial costs and basic rate tax on individuals. So, investors who hold units inside individual savings accounts (ISAs) and personal equity plans (PEPs) have fared even better.

Also, purchases via low setting-up charges provided by discount brokers and fund supermarkets have reaped their reward.

Since the spring, people have started betting on a more general economic recovery, fuelled by a determined approach in the United States.

There are signs that it could be working. Investors over here have been encouraged to buy cyclical shares - like engineering, chemical and natural resource companies - all of which quickly gather the benefits of growth.

During the recent depressing years, the FTSE 100 has been dominated by financial companies and defensive stocks like food manufacturers and tobacco products. It's good to see that the pendulum is swinging the other way.

A prime example of a change in fortunes is shown by healthcare funds. These are back in the pink and set to thrive.

Only three years ago these shares were the flavour of the market. But, apart from the world economic downturn, medicalbased equities suffered from three severe setbacks.

Tighter industry controls regulating new drugs was accompanied with a rash of pharmaceutical firms chasing similar products. …